FAO Back on Track

The on-again, off-again emergence from bankruptcy for FAO Inc. (King of Prussia, Pa.) is evidently on again, scheduled for early next week.

The toy retailer announced that additional support from its vendors and lenders had allowed it to reach agreement on final terms with its new lending and investment team, which is purchasing $30 million of the company's convertible preferred stock.

The investment group includes current FAO chairman Fred Kayne and department store retailer Saks Inc. (Birmingham, Ala.).

In addition, a favorable ruling by the U.S. Bankruptcy Court has extended FAO's right to use cash collateral, has been extended through Thursday, April 24, 2003. As a result, the bankrupt retailer now expects its confirmed plan of reorganization to become effective early next week, at which point it will begin making distributions to creditors pursuant to the terms of its plan.

A week ago, FAO had announced “unexpected complications” in its bankruptcy exit funding had led to the withdrawal by the purchasers of its equity. Completion of the funding has been a condition to the company's planned emergence from bankruptcy, which had previously been set for April 18, 2003. The retailer's right to use cash for debts it owes to its lenders had expired on April 18.