Zany Brainy, the King of Prussia, Pa., toy retailer that has been in Chapter 11 bankruptcy reorganization since May, has signed an agreement that will avail it of $115 million to help it reorganize and emerge from bankruptcy.
Upon receiving Bankruptcy Court approval, which is expected to occur in August, Zany Brainy will transfer substantially all of its employees, assets and certain liabilities, including store leases, to a newly created subsidiary whose operations are not subject to the Bankruptcy Court proceedings. Waterton Management (Los Angeles), a private investment entity, will arrange for a new secured loan facility for this subsidiary. Zany Brainy will utilize cash received from the new subsidiary to pay off the existing Debtor-in-Possession facility, pay certain other expenses and obligations and, under a plan of reorganization, fund payments to its unsecured creditors. The new operating subsidiary will also retain substantial working capital at the time of closing.
As soon as practicable after the closing, Zany Brainy intends to file a plan of reorganization. Provided that Zany Brainy meets its sales targets and other projections prior to closing, it is anticipated that unsecured creditors will receive a distribution on their pre-petition claims in the range of 15 to 20 cents on the dollar. Existing Zany Brainy shareholders are not expected to receive any distribution.
“In a market that is riddled by consolidation and liquidation, one brand consistently stands out in terms of providing the merchandise and shopping experience that kids love and parents trust,” said Kenneth Abdalla, managing member of Waterton Management. “That brand is Zany Brainy.
“Zany Brainy's Chapter 11 filing was about liquidity. Zany Brainy has a strong brand, excellent store locations, and hard working and talented employees and management.”
Zany Brainy operates 187 stores in 34 states specializing in high-quality, educational toys, games, books and multimedia products for children.