Oriental Trading struggles with debt

For most of the 78 years since its founding, Oriental Trading Co. has been the life of the party.

But now the Omaha company that makes party favors and other inexpensive toys is struggling to pay its creditors after being sold for $1 billion in 2006 to the Carlyle Group, a private investment firm.

The company missed an interest payment in late May on part of its $640 million in bank loans and currently is in talks with its lenders to fix its finances.

Oriental Trading said in a statement that it is continuing to work with lenders to restructure its debt loan. It anticipates a “successful outcome to that process,” the company said.

“Despite a challenging economic environment over the past two years, Oriental Trading Co. has stabilized its revenues over the past six months and continues to generate double-digit operating margins and strong cash flow,” it said.

With annual revenue of about $485 million, Oriental Trading has struggled to shoulder the mountain of debt stemming from its leveraged buyout by Carlyle, whose private equity empire includes such names as Hertz, AMC Entertainment, Dunkin’ Donuts and Baskin-Robbins.

Carlyle bought Oriental Trading from another private equity firm in a deal valued at $1 billion in the midst of the biggest buyout boom in history.

Critics contend that private equity firms sometimes saddle the companies they buy with dangerous levels of debt.

So far, however, these investment firms have proven to be extremely astute at shepherding their companies through the recession. Many have negotiated with lenders to delay loan payments or ease the terms on their companies’ debts.

Christopher Ullman, a spokesman for Carlyle, issued the following statement: “This investment didn’t work out the way we expected, but our overall portfolio is in very good shape.”

He declined to make further statements because of current negotiations.

Sales declined at Oriental Trading, which had 30 consecutive years of revenue growth before it was acquired by Carlyle, when consumers sharply curbed their spending in 2008. Meanwhile, postal rates increased by 20 percent, causing the company to reduce the number of catalogs it mailed.

But that meant fewer customers received catalogs and fewer placed orders, said Scott Tuhy of Moody’s Investors Service.

Early last year, Oriental Trading negotiated waivers on the terms of some of its loans with the banks. Those waivers will expire in mid-August, and cash on its books had fallen to $5.7 million in early April from $17.4 million earlier in the year, according to analysts at Standard & Poor’s.

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