FAO Schwarz Parent Files for Chapter 11

Restrictive borrowing conditions put in place by FAO's lenders forced the company to file for bankruptcy, company spokeswoman Renee Hollinger said. FAO's bank lenders are holding about $20 million as a cash collateral against the company's outstanding loans. As part of an agreement reached with the lenders, FAO will be able to tap into that cash collateral and its operating revenue to fund its operating activities going forward, assuming the bankruptcy court approves the plan, Hollinger said.

"This gives us an opportunity to complete our store closings and restructuring under a structured, court-controlled, supervised environment," she said.

Despite acquiring its high-profile brands, FAO has struggled to get its financial footing. In its third fiscal quarter, which ended Nov. 2, the company lost $23.7 million, or 66 cents per share, on $88 million in revenue.

FAO lost $9.9 million, or $4.07 per share, on $57 million in revenue last year. FAO's outstanding shares ballooned from 7.2 million to 35.8 million over the last year as it issued stock for acquisitions and to fund its working capital.