What The KB Toys Bankruptcy Means for Toys R Us
KB Toys filed for Chapter 11 yesterday, or really, Chapter 22, since it's the toy retailer's second go-around in bankruptcy court. Both filings have private equity fingerprints all over them. In 2005, it was on Bain Capital's watch. This time the failed owner is Prentice Capital (more of a hedge fund). Unlike in 2005, however, KB Toys isn't going to reemerge. So it's actually more a Chapter 7 than Chapter 11. For its part, Prentice has had a rough go of it with distressed retailers. Goody's Whitehall Jewelers, and Levitz Furniture have all gone under on the firm's watch. Here's a good Dealscape post on it. But trouble in toy-land raises questions about the health of KB Toys' main competitor, Toys R Us, which was taken private for $8.2 billion in 2005 by KKR, Vornado Real Estate, and, despite getting burned by toys once, Bain Capital. That was an 11x EBITDA multiple, which looks both impossible and extravagant nowadays.
