The children's toy industry has faced financial distress, leading to bankruptcy filings and the demise of national toy store chains over the past 20 years.
KB Toys had about 1,300 stores in 50 states when it filed for Chapter 11 bankruptcy to reorganize in 2004, according to a LinkedIn page. The company never recovered as the Great Recession hit in 2008, and the company again filed bankruptcy in December of that year. It went out of business in early 2009.
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The most notable toy store bankruptcy was Toys 'R' Us Inc.'s Chapter 11 filing Sept. 18, 2017. The company was strapped with about $5 billion in debt and faced tough competition from huge retailers, such as Amazon (AMZN) , Walmart (WMT) , Target (TGT) . The company would eventually wind down operations and shut down all stores. Its last two U.S. stores closing in January 2021.
As national toy store retailers have disappeared, the makers and distributors of toys and related products continue on. But even some of them are having a hard time and need to use the bankruptcy courts to start over.
KidKraft files prepack Chapter 11 bankruptcy to sell assets
KidKraft Inc., an industry leader in children's imaginative toys and outdoor play products, and 10 affiliates on May 10 filed for a prepackaged Chapter 11 Bankruptcy in the U.S. Bankruptcy Court for the Northern District of Texas in Dallas.
The bankruptcy plan calls for the debtor to sell substantially all of its assets to Backyard Products, the nation's largest maker of backyard sheds and playsets.
The Dallas-based debtor, which is owned by MidOcean US Advisor, also filed for recognition proceedings under the Companies' Creditors Arrangement Act in the Ontario Superior Court of Justice in Canada, according to its petition. KidKraft operates four subsidiaries in Canada, which include Solowave Design Holdings Limited, Solowave Design LP, Solowave Design Inc. and Solowave International.
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Privately held KidKraft is a leader in branded, sustainable wood-based active and imaginative play products in U.S., Canada, Europe and Asia, which include dollhouses, play sets, playhouses, swing sets and more. The 56-year-old company distributes its products through partnerships with major global retailers and through direct-to-customer sales, with more than 3,000 points of distribution in over 90 countries.
KidKraft said in court papers that it has faced significant headwinds in recent years that strained its liquidity and operations. The company was not able to satisfy its funded debt obligations and sought a sale process, which resulted in its prepackaged Chapter 11 plan that includes a stand-alone Section 363 sale of its assets that is expected to preserve jobs and allow the KidKraft brand to continue as a going concern.
The debtor finalized a restructuring support agreement with its first-lien secured lender Gordon Brothers of Boston, its majority shareholder MidOcean Partners of New York, and Backyard Products before filing Chapter 11.
KidKraft is seeking approval of up to $10.5 million in debtor-in-possession financing from Gordon Brothers to cover business expenses during the bankruptcy case with $4 million available on an interim basis and $6.5 million on final approval. The DIP will also roll up $23.3 million of prepetition rescue financing.
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KidKraft listed $100 million to $500 million in assets and liabilities in its petition. The debtor owed about $151.9 million in funded prepetition debt obligations, including $63.2 million owed on a first-lien revolving credit facility due in June 2024, $81.7 million owed on a first-lien term loan credit facility, $5 million owed on a subordinated unsecured note and $2 million in interest, according to court papers.
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The debtor's largest unsecured creditors include Walmart, owed $5.3 million; MidOcean Partners IV, owed $5 million; and Huangyan Import and Export Corp. owed $2.8 million, the petition said.
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