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Prentice-backed KB Toys files bankruptcy

The Massachusetts-based toy company has filed for Chapter 11 protection amid steep declines in sales, a result of the overall slowdown of consumer spending. Prentice Capital Management bought KB out of bankruptcy in 2004 from Bain Capital.

KB Toys, which alternative investment manager Prentice Capital Management bought out of bankruptcy from Bain Capital in 2004, has filed for Chapter 11 protection and intends to go out of business for good.

The company has struggled to pay its debt obligations amid steep declines in retail sales in the past few

Grim holiday season

months, as consumers increasingly stop spending in the recession, according to Raymond Borst, vice president and controller of KB Toys, in a bankruptcy filing.

“The liquidity crisis is directory attributable to a sudden and sharp decline in consumer sales due to macro-economic forces,” Borst said. KB’s comparable store sales have dropped 20 percent since October, Borst added. KB will immediately hold going-out-of-business sales in its stores.

KB was established in 1922 as a family-owned business and 1981 was sold to Melville Corporation. Melville sold KB to Consolidated Stores Corporation in 1996, and in 2000, a group led by Bain Capital bought the company. Bain acquired the company for $305 million, using about $20 million in cash in the deal.

The company entered bankruptcy in 2004 with Bain and its management group accused of stripping KB of $120 million and forcing the bankruptcy filing. A creditors group sued Bain and members of the management team for $114 million. The lawsuit was settled for an undisclosed sum, according to The Wall Street Journal.