KB Toys, creditors, request approval of settlement with lenders

By Alice Popovici

New York, Nov. 10 - KB Toys, Inc. and its official committee of unsecured creditors requested authorization for approval of a settlement with lenders PKBT Lending LLC, PKBT Funding LLC and Prentice Capital Management, LP, according to a Monday filing with the U.S. Bankruptcy Court for the District of Delaware.

A hearing is scheduled for Dec. 1.

Terms outlined in the motion include:

• $700,000 of the cash proceeds from the asset sales will be used to make distributions to claimholders;

• The prepetition second lien agent waives any claim against the company's estates with respect to cash retained by the company;

• The prepetition second lien lenders are not liable to fund any of the company's obligations;

• The committee waives any claims against the Prentice entities, the prepetition collateral and the allowed prepetition second lien lenders' claim of $105.57 million;

• The prepetition second lien lenders agree to withdraw fee objections on the effective date; and

• The final cash collateral order will be extended to Jan. 31

The parties involved in the settlement believe that "if their disputes are not resolved now, future proceedings would be protracted and expensive, involve complex issues of liability and/or damage and involve substantial uncertainties and risks inherent in litigation," according to the motion.

KB Toys, a Pittsfield, Mass., mall-based toy retailer, filed for bankruptcy on Dec. 11, 2008. Its Chapter 11 case number is 08-13269.

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