Prentice Capital Management will invest $20 million on the reorganized KB Toys and provide a credit facility of up to $25 million in exchange for 90% of the retailer's stock. However, KB Toys executives are asking the bankruptcy court to allow it to conduct an auction where it would sell off its assets and leases.

KB Toys is left with about half of the stores it once operated. It started the mass closures last year after its Chapter 11 filing, and the company's last closure announcement, of up to 238 units, was in October.

Executives have said that the mall-based chain was hurt by extreme competition and price wars. Now they expect for the company to emerge from bankruptcy before this year's holiday season.