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KB Toys Back in Chapter 11 and Faces Liquidation

KB Toys Inc. has returned to Chapter 11 under Prentice Capital Management LP, the private-equity firm that bought the retailer out of bankruptcy in 2005. However, this time KB Toys is slated for liquidation.

The company plans to quickly start going-out-of-business sales at hundreds of its stores, "in order to take advantage of the last two weeks of the holiday selling season," KB Toys said in a filing with the U.S. Bankruptcy Court in Wilmington, Del.

An "expedited and orderly" bankruptcy liquidation was the only option left for KB Toys, which was hit by the slump in consumer spending that has slammed the retail sector, court documents say.

KB Toys, which is based in Pittsfield, Mass., owes about $65 million on loans to first-lien lenders, and about $30 million on letters of credit to the first-lien group. It also owes about $95 million to second-lien lenders, court documents say.

The retail operation consists of 277 stores located primarily in shopping malls, along with 40 KB Toy Works stores, which are somewhat larger and located in strip malls. Additionally, KB Toys operates 114 outlet stores and 30 temporary "holiday stores," court documents say.

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