Discovery Zone Inc. files for bankruptcy Acquisition binge caused debt

company plans reorganization

Recreation

March 26, 1996|By BLOOMBERG BUSINESS NEWS

WILMINGTON, Del. -- Discovery Zone Inc. filed for Chapter 11 protection yesterday as the operator of children's indoor entertainment facilities said its rapid expansion burdened it with too much debt.

The Fort Lauderdale, Fla.-based company, whose bankruptcy filing had been expected for nearly two months, said it plans to reorganize. Discovery Zone said it would soon close unprofitable locations and renegotiate leases for some of its 330 centers in North America and Europe.

Separately, Discovery Zone said it named Donna Moore its chief executive officer, president and a director. She has been president and chief operating officer since July.

"A successful Chapter 11 reorganization will address the problems caused by the company's rapid expansion and put Discovery Zone on stronger financial footing," Ms. Moore said.

Shares in Discovery Zone closed at 68.75 cents, down 31.25 cents, on Nasdaq trading of 1.15 million shares, more than double its three-month daily average of 501,600 shares. The stock, which reached $34.25 in August 1993, has fallen 93 percent in the past year.

Discovery Zone listed liabilities of $366.2 million and assets of $164.4 million in its main Chapter 11 petition, filed in U S. Bankruptcy Court in Wilmington.

The largest unsecured creditor listed in the petition is Bank of New York, trustee for $128 million in unsecured notes. The next largest creditor listed is NationsBank, agent for $100 million in bank loans.

Discovery Zone said it has a commitment for $15 million in debtor-in-possession financing.

The nation's largest chain of indoor children's centers has struggled to recover from an acquisition binge that left it with $230 million of bank debt and subordinated debentures. The centers include play zones replete with tubes, slides, ball bins and trampolines.

Discovery Zone, once a favorite of Wall Street, last made money in 1993, when it reported a profit of $3.3 million. It lost $24.9 million in 1994 and $114.4 million through the first three quarters of 1995, falling into a technical default of some loan covenants in September.

Also yesterday, the company said Sumner Redstone, chairman and CEO of Viacom Inc., and Phillippe Dauman, deputy chairman and executive vice president of Viacom, have resigned as directors. The company said Adam Phillips, senior vice president and general counsel of Blockbuster Entertainment Group, was appointed a director.

Viacom owns a 49 percent stake in Discovery Zone through its acquisition in 1994 of Blockbuster Entertainment Group.

Pub Date: 3/26/96

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