The CEO of the company that makes Tonka trucks and Care Bears successfully completed a four-month term in bankruptcy court last week, bailing out all creditors while he was busy fending off takeover attempts.
Basic Fun, a Boca Raton, Fla.-based company that also specializes in classic toy brands such as Lincoln Logs, Lite-Brite and Tinker Toys, is on track for its best holiday season in history, along with the rest of the toy industry. riding on. Co-founder and CEO Jay Forman told the Post.
Pandemic-related toy supply chain disruptions forced Basic Fun to refinance on unfavorable terms, according to a filing in U.S. Bankruptcy Court in Delaware. This was despite the fact that it was in danger of default.
The company is expected to reach $200 million in sales this year, but fell into financial trouble after Toys R Us went bankrupt in 2017, losing $6 million worth of debt. Amid the pandemic, the company took another hit as higher shipping container rates in 2021 and 2022 wiped out profit margins.
Meanwhile, Basic Fun's lender, Falcon Investment Advisors, was not open to restructuring the company's debt. The filing said “extensive negotiations” over Basic Fun's debt restructuring led to the “stalemate.”
In response, Basic Fun filed for Chapter 11 on June 28, choosing the nuclear option.
“The company filed to avoid losing majority control to Falcon,” Foreman, who co-founded Basic Fun 15 years ago, told the Post. “They proposed keeping us as shareholders and me as CEO, without majority control. [or] Meaningful ownership. That would have been very problematic for me. ”
“We put our cards on the table in front of the court and in front of our creditors to show the company's position,” Foreman added. “And when we presented the full case, they understood the situation and agreed to restructure the debt.”
Basic Fan then “amicably settled” with Falcon, which essentially swapped debt for more equity, Foreman said. The private equity firm increased its stake in Basic Fun, which partnered with a toy company, to 32.5% from 15% in 2018.
Basic Fun currently has $65 million in funding, including funding from Falcon, and is using that money to pay vendors and expand its business, Foreman said.
Unlike the devastating Toys R Us bankruptcy that shocked the industry, Foreman said Basic Fun isn't trying to stiffen vendors. Products shipped to toy manufacturers before and during the bankruptcy filing will be paid in full.
“When I applied, I received over 100 panicked phone calls from everyone involved in the transaction,” Foreman said. “Most of the time people get their hair cut during bankruptcy, but in Toys R Us' case we knew how painful it was and we didn't want to do that to anyone.”
Basic Fun also retains all 185 employees, 60 of whom are based in Hong Kong.
“None of our vendors, licensors, retailers or employees have suffered any losses,” Foreman said.
The toy industry is in a precarious situation. According to data research firm Sarkana, overall sales in the first half of this year decreased by 0.4% compared to the same period last year.
But it's an improvement compared to 2023, when toy sales plummeted by 8% to $2.4 billion.
By another measure, Customer Growth Partners predicts that toys will be one of the weaker shopping categories, down 3% compared to last year. Foreman predicts that toy sales will be flat overall this year. [in part because] Children are increasingly distracted by digital devices, and there is a lot of concern about this election. ”
Juli Rennett, Circana's vice president of U.S. toys, said in a statement in August that the toy sector is “moving from a state of adjustment to a state of consistency.”
“However, it is important to note that there is no guarantee that the second half of the year will be smooth sailing. Inflation is starting to calm down, but unemployment, record consumer debt, student loan repayments and fluctuating consumer confidence We need to monitor the situation carefully.”
