The CEO of of the company that makes Tonka Trucks and Care Bears successfully exited a four-month stint in bankruptcy court last week that made all of his creditors whole — all while he was busy fending off a takeover attempt.
Basic Fun — a Boca Raton, Fla.-based firm which also specializes in classic toy brands like Lincoln Logs, Lite Brite and TinkerToy — is now on track to have one of its best holiday seasons ever – even as the rest of the toy industry is bracing for anemic sales, co-founder and CEO Jay Forman told The Post.
That’s despite the fact that Basic Fun this summer was poised to default on $60 million in loans after pandemic-related disruptions to toy supply chains forced it to refinance on unfavorable terms, according to filings in US Bankruptcy Court in Delaware.
The company, which is on track for $200 million in sales this year, ran into trouble after the Toys R Us bankruptcy in 2017, losing $6 million worth of receivables. It took another hit during the pandemic when soaring rates for shipping containers in 2021 and 2022 erased its profit margin.
Meanwhile, Basic Fun’s lender, Falcon Investment Advisors, wasn’t willing to restructure the company’s debt. “Extensive negotiations” over restructuring Basic Fun’s debt obligations led to an “impasse,” according to the filing.
In response, Basic Fun on June 28 took the nuclear option and filed for Chapter 11.
“The company filed to avoid losing majority control to Falcon,” Foreman, who co-founded Basic Fun 15 years ago, told The Post. “They offered to keep us as shareholders and me as CEO just without majority control [or] a meaningful ownership stake. That would have been very problematic to me.”
“We put our cards on the table in front of the court and our creditors to show the position of the company,” Foreman added. “And as we presented our full case, they understood the situation and agreed to restructure the debt.”
Basic Fun has since “amicably reconciled” with Falcon, which essentially swapped out its debt for more equity, Foreman said. The private equity firm increased its stake in Basic Fun to 32.5% from 15% in 2018 when it partnered with the toy company.
Basic Fun has now secured $65 million financing, including from Falcon, and is using the funds to pay its vendors and expand its business, Foreman said.
Unlike the devastating Toys ‘R’ Us bankruptcy, which was a powerful gut punch to the industry, Basic Fun is not stiffing its vendors, Foreman said. They will be paid in full for the goods they shipped the toymaker before and during the bankruptcy filing.
“When we filed, we got over 100 panicked phone calls from everyone we did business with,” Foreman said. “In most cases, people get a haircut during a bankruptcy, but I knew how painful it was with Toys ‘R’ Us and I didn’t want to do that to anyone.”
Basic Fun also retained all of its 185 employees, of which 60 are based in Hong Kong.
“None of our vendors, licensors, retailers or employees lost money,” Foreman said.
The toy industry has been on shaky ground. Overall sales for the first six months of the year declined by 0.4% compared with the same period a year ago, according to data research firm Circana.
But that’s an improvement over 2023 when toy sales plummeted 8% to $2.4 billion.
By another measure, Customer Growth Partners, estimate that toys will be one of the weaker shopping categories, down 3% compared to last year. Foreman predicts “toy sales for the year will be flat as a whole [in part because] Kids are distracted more and more by digital devices and there is a lot of worry about this election.”
The toy sector is “moving from a state of correction to one of consistency,” Juli Lennett, vice president of U.S. toys for Circana, said in a statement in August.
“However, it’s important to note that there are no guarantees for smooth sailing through the second half of the year. While inflation has begun to cool, the unemployment rate, record consumer debt, student loan repayments, and fluctuating consumer confidence should be monitored closely.”
Credit: Source link
