Debt Forces Oriental Trading Into Chapter 11

In an effort to pay down debt, OTC Holdings Corp., owner of gifts and novelty merchant Oriental Trading, on Aug. 25 filed voluntary petitions for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware.

OTC Holdings is looking to have its Chapter 11 case consolidated with those it filed on its own behalf and for Oriental Trading, OTC Investors Corp., Fun Express and Oriental Trading Marketing.

Private equity firm Carlyle Partners in 2007 invested about $260 million and acquired 68.06% of Oriental Trading’s preferred stock from Brentwood Associates, which bought the company in 2000. Brentwood Associates Private Equity owns 13.74% of the preferred stock, and Brentwood Associates Co-Investors owns 10.99%.

The company said in a statement that it has reached agreement on the terms of a pre-arranged plan of reorganization with its first lien lenders to reduce debt and improve its capital structure and operating flexibility.

Under the plan, Oriental Trading will reduce its funded debt by more than 70% to $200 million, said Oriental Trading CEO Sam Taylor in a statement. For the fiscal year ended April 3, OTC Holdings had assets totaling $463.3 million, liabilities of $756.6 million and did net sales of $485.4 million.

“We are pleased with the ongoing support we have received from our lenders and believe this process will lead to a sustainable, long-term financial foundation for the company,” Taylor said in the statement. “Oriental Trading is a profitable company with a strong underlying business model and continues to generate double-digit operating margins.”

Oriental Trading said it will operate its business without interruption during the restructuring process.

In addition, the company said Oriental Trading has obtained a debtor-in-possession financing facility of $40 million from a group of its existing lenders, which will provide sufficient funds to operate its business during the restructuring process.

According to the list of top 30 unsecured creditors it filed with the court, Oriental Trading owes World Color Logistics more than $2.76 million, UPS $706,253, Epsilon Data Management $570,000 and FedEx $445,035.

Oriental Trading has outstanding bank loans of $185.8 million and $85.7 million through Wilmington Trust, according to the filing.

“With such a large debt balance, OTC had little flexibility,” said Stuart Rose, managing director for investment firm Tully & Holland. “The hiccup of no growth – or even declining sales and profitability caused by the economic downturn and other factors – tripped up a company that was handcuffed by its large debt balance.”