FAO staves off bankruptcy with short-term bank agreement

Cash-poor cataloger/retailer FAO received a holiday present from its lenders: a standstill agreement. Under the terms of the deal, the banks that form FAO’s lending group, led by Wells Fargo Retail Finance, will take no action relating to the marketer’s loans until Jan. 10. In addition to upscale toys cataloger/retailer FAO Schwarz, the company includes toystore chain Zany Brainy and cataloger/retailer The Right Start, which sells apparel and accessories for babies and toddlers.

The standstill agreement gives King of Prussia, PA-based FAO time to work with its lenders and vendors to improve liquidity. Last week the company had said that unless it came to some sort of agreement with its banks, it might have to file for bankruptcy protection.

FAO also announced that, as part of its plan to emerge from the red, it plans to close up to 70 of its underperforming stores by the end of March.