KB Toys disclosure statement, plan-funding bid approved

By Caroline Salls

Pittsburgh, July 15 - KB Toys, Inc.'s disclosure statement and PKBT Funding LLC's bid to fund its plan of reorganization were approved Friday by the U.S. Bankruptcy Court for the District of Delaware, according to a company news release.

A plan confirmation hearing is scheduled for Aug. 18. Creditors have until Aug. 12 to vote on the plan.

PKBT, an affiliate of Prentice Capital Management LP, will take control of the company when the plan becomes effective.

The plan is based on a funding agreement between KB Toys and PKBT under which the Prentice affiliate will invest $20 million in a reorganized KB Toys and provide a seasonal overadvance credit facility of up to $25 million in exchange for 90% of the common stock and 100% of the preferred stock of the reorganized company.

The remaining common stock will be held by a trust for the benefit of the unsecured creditors of those KB Toys entities being reorganized under the plan of reorganization.

Under the plan, filed with the court on Friday, KB Toys will issue 45,000 shares of new common stock, including 40,500 shares to the plan funder and 4,500 shares to a residual trust.

KB Toys will also issue 17,000 preferred shares to PKBT Funding.

The distributions will give PKBT Funding 90% of the common stock and 100% of the preferred stock of the reorganized KB Toys.

KB Toys and the official committee of unsecured creditors jointly filed the plan.

Holders of bank secured, other secured, unsecured, convenience and inter-company claims are considered impaired and allowed to vote on the plan.

Holders of bank secured claims will get 100% recovery in an amount to be determined by the bankruptcy court on plan confirmation; holders of other secured claims will recover the value of the collateral securing the claim.

Those with unsecured claims against one of the holding companies will get 2% plus litigation recoveries from the recapitalization claim via the residual trust.

Holders of class A and class B common stock will get no recovery.

The company expects to emerge from Chapter 11 bankruptcy before the 2005 holiday season.

KB Toys, a Pittsfield, Mass., toy retailer, filed for Chapter 11 on Jan. 14, 2004. Its Chapter 11 case number is 04-10120.

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