💥Zero Fun💥
Funko Inc. ($FNKO) in the doldrums; Selecta ushers in coop battles.
Funko, Inc. ($FNKO) (“Funko” or the “company”) is the Everett, WA-based toymaker, best known for its Funko Pop! vinyl figures featuring characters from film, television, video games, music, sports, anime, and other pop culture content. In addition to its “Core Collectibles” (77% of FY24 Revenue), the company also designs and manufactures apparel, accessories, plushies, homewares, and NFTs. Somewhat surprisingly — only because we’re not HUGE f*cking nerds of the sort NYU Professor Scott Galloway is begging to get out basements — the company has sold over a billion of its pop culture products to date.
Funko caters to a market it refers to as “kidults” — children aged 12+ and adults — and estimates the average age of its consumers is actually 40 years old (hence Kevin Smith 👆). It believes this older audience insulates it from the mercurial toy-crazes that sweep through younger audiences (👀 Labubu).
The company began as a bobblehead maker back in ’98 before a consortium of investors led by Brian Mariotti acquired the company in ’05. Mariotti served as CEO from that time until ’23 (minus a brief period stepping back into a creative role), and is credited with launching the Funko Pop! craze.
Private equity firm Fundamental Capital bought the company from Mariotti in ’13, and later sold a controlling stake to ACON Investments (“ACON”) in ’15.* When ACON took the company public in ’17, Funko won the ignominious distinction of worst performing IPO of the 21st century, sinking 41% on its first day, 😬.
Investors fretted about the staying power of Funko Pop!, questioning whether it was a Beanie Baby-esque mania and wondering how quickly it would flame out.
Those investors may be proven right eventually, but they were waaaayyyy too early in predicting the end of the Funko Pop! craze. The company continued to grow sales at a 20% CAGR from ’17, the year of the IPO, to its peak in ’22. It tripled the number of licensed properties, expanded overseas, and posted several years of $1b+ revenue. Okay, fine, maybe we lied: Johnny may own one or two of the things, 🤷♀️.
The company’s success even prompted a back-and-forth battle for the title to the Guinness World Record for the largest Funko Pop! collection between these two:
Paul (top) is the current record holder with over 8k of these bad boys, but David (bottom) says the overall value of his Funko Pop! collection is around $1mm.
As with our friends in private credit, we’re a bit suspicious of David’s marks.
At the company’s zenith in ’22, ACON Investments sold 80% of its shares (25% of the company) to a consortium led by The Chernin Group (“TCG”) for $263mm.** Also, in the consortium: eBay Inc. ($EBAY), which also entered into an agreement with Funko to serve as its preferred secondary marketplace and partner for exclusive product releases; Robert Iger, CEO of Walt Disney Co. ($DIS), which licenses Funko the IP that constitutes roughly a third of its sales (Disney itself is not an investor); and Rich Paul, CEO and Founder of Klutch Sports Group and Head of Sports at United Talent Agency.
Despite the investment from industry heavy-hitters, demand for Funko products finally began to wane in ’23. Net sales declined 17% in FY23 and another 4% in FY24. Through 3Q this year, Net Sales are down a further 16% and are projected to fall below the $1b mark for the first time since Funko hit that milestone in ’21.
Falling sales put pressure on gross margins, particularly in ’23, when Funko incurred significant costs to deal with excess unsold inventory. Gross margins rebounded from their ’23 lows after the company undertook a restructuring effort that included firing 200 people. Margins are once again under pressure though, now due to President Trump’s tariff policies. The company utilizes third-party manufacturers in Vietnam, China, and Mexico to produce the majority of its products.
Royalty costs also make up a significant portion of Funko’s cost of sales given the entire business model depends on IP licensed from the likes of DIS, Netflix Inc. ($NFLX), the NFL, and other media and entertainment companies. Funko’s licensing agreements carry an average royalty rate of around 16%, but they also contain minimum royalty guarantees, which have added insult to injury as sales have declined (and IP franchises like Marvel wobble).
A combination of the above factors and lower operating leverage has strained Adj. EBITDA even further.
As the business has deteriorated, the Board of Directors has sought to stem the bleeding by changing up the management team. Mariotti stepped down as CEO in July ’23, first announcing that he would take a six-month leave of absence in July ’23 to “recharge [his] batteries” and then six weeks later, decided to make the leave permanent. After a long search, the Board appointed Hasbro Inc. ($HAS) executive Cynthia Williams to the CEO role in May ’24 but fired her barely a year later in July ’25. In August ’25, the Board appointed Josh Simon, most recently the VP of Consumer Products at NFLX.
Suffice it to say that Simon did not inherit the high-flying Funko of years past. Funko first included a going concern warning in its 1Q25 10-Q as it forecast that it would begin to bust its debt covenants starting in 2Q25.
Funko ended 3Q25 with $39mm and $241mm of funded debt, comprised of:
📍a $135mm fully drawn revolver (S+400) due September ’26, agented by JP Morgan Chase & Co. ($JPM),
📍a $100mm term loan (S+400) due September ’26, also agented by JPM; and
📍a ~$7mm outstanding equipment finance loan from Wells Fargo Inc. ($WFC).
The company has amended its revolver and term loan credit agreement four times since ‘23. The amendments have waived breaches of the company’s maximum net leverage and minimum fixed charge coverage covenants and reduced the size of the revolver from $215mm to $180mm, then to $150mm, and then to $135mm as of July ‘25, with a further $10mm reduction going into effect at year end (PETITION Note: again, it’s already fully drawn). The most recent amendment added a minimum cash covenant and introduced new “milestone covenants” requiring the company to take certain actions in furtherance of a refinancing or sale. Funko’s next milestone deadline is November 25, 2025, and as of the filing of the most recent 10-Q on November 6, 2025, it was not in compliance with the upcoming milestone covenant.
So, who is “…tak[ing] certain actions in furtherance of a refinancing or sale?” Per the 3Q25 earnings call, Funko has Moelis & Company ($MC) as its financial adviser. Per Bloomberg:
“[Funko has] been holding talks with investors including traditional lenders and private credit, according to a person with knowledge of the discussions. The difficulty of trying to estimate tariff impacts is slowing down the progress, the person said.”
Unsurprisingly, Funko’s stock is getting f*cking annihilated and is down 77% year to date.
With its next milestone covenant deadline imminent, we expect to hear more from Funko soon. Stay tuned, nerds.
*ACON’s purchase reportedly left Fundamental and Mariotti with about 20% ownership each.
**Chernin has two representatives on the company’s board of directors.
🔥Conference Alert: 2025 Distressed Investing Conference🔥
The Beard Group is back at it on December 3, 2025, with their annual “Distressed Investing Conference” annnnnnd … how can you not be enticed by this panel👆featuring guys making an aggregate $60mm+/year talking about how they most definitely ain’t in demise?*
Jokes aside, the panels have top-notch speakers and do look interesting (e.g., healthcare, LME, private credit, cross border, etc.) so if you’d like to go, we’re fortunate enough to have some 20%-off discount codes for our readers.
Just navigate here and plug in PETITION20 in the “promo” box to secure your discount. Happy conferencing!
*As they bill you close to $3k/hour just by looking at you. This is the panel description:
“Notwithstanding headlines and suggestions to the contrary, this lawyer-led panel will explore the continued utility and necessity of chapter 11 and restructuring more generally. The panel will explore the evolution of the practice over the last 30 years, concentrating on recent trends including mass torts and private credit, as well complex capital structures and creative structuring to expedite solutions. The panel will demonstrate that restructuring is and always will be very much alive.”
⏩One to Watch: Selecta Group B.V. ⏩
Around here, we give a lot of well-deserved sh*t to restructuring pros for, at best, questionable strategery and chapter 11 f*ckery. Clever work, though, deserves air time.
Enter Kirkland & Ellis LLP (“K&E”) and PJT Partners LP ($PJT) on behalf of Selecta Group B.V. (“Selecta BV”) and its affiliates (collectively, together with Selecta BV, the “company” or “Selecta”), Weil, Gotshal & Manges LLP (“Weil”) on behalf of an ad hoc group of 1L noteholders (the “AHG”),* and Paul Hastings LLP (“PH”) on behalf of the company’s sponsor, KKR & Co. Inc. ($KKR).
Let’s lay the groundwork. If you couldn’t guess from pic at the top, Selecta is a vending machine food and drink company.** Over the last few years, its sales looked like this …
… which, except for ‘24, looks like great growth. But it’s easy to forget how bleak ‘20 was — doubly-so for this coffee-and-snack company, which, for the LTM ending September ‘19, generated 46% of its revenue from private business installs and 36% from “on the go” locations (train stations, airports, etc.). From just below the presentation’s chart:
“Growth within existing portfolio driven by volume recovery from Covid-19 and improvements in price/mix dynamics.”
More of a return to normal … followed by, well, decline, which the company blamed on “… weaker consumer spending and country-specific drivers within certain geographies,” aka Swiss folks not buying coffee and a government beat-down on paper cups in the Netherlands.**
Regardless, it was problematic because the company had, as of June ‘25, ~€1,350mm in funded debt maturing in ‘26:
📍€150mm attributable to a super senior revolver due January ‘26 (the “revolver”),
📍€821mm in 1L notes due April ‘26 (the “1L notes”), and
📍€377mm in 2L notes due July ‘26 (the “2L notes”).
Ironically, the 1L and 2L notes themselves were the product of an October ‘20 UK scheme of arrangement that then-restructured ~€1.5b in senior secured notes due ‘24.***
Foreshadowing, we suppose. Anyway, here’s the org chart.
Sometime in ‘24, Selecta realized it wouldn’t have enough cash to pay all the debt at maturity. Or, more pressing, make interest payments in the interim. So it reached out to noteholders, resulting in the formation of the AHG, which eventually signed a seemingly-market-standard cooperation agreement roundabouts December ‘24.****
Early the next month, on January 2, 2025, Selecta skipped out on a 1L interest payment, and a couple of weeks later, on January 13, 2025, Selecta announced (i) a majority of 1L noteholders extended the 30-day cure period and (ii) a subset of existing noteholders had agreed to pony up another €50mm in interim financing while the AHG pow-wowed with the company, which, come June ‘25, had grown by another €10mm on account of fees and interest.
Eventually those negotiations led to a deal.
On April 30, 2025,***** the company announced it had “… entered into a binding agreement with its key financial stakeholders with respect to a comprehensive recapitalisation …,” which provided:
📍Formation of Bidco. The creation of Seagull Bidco Limited (“Bidco”), indirectly held by Seagull Topco Limited (“Topco”). The Bidco would acquire, through a Netherlands Commercial Court-approved transfer, the shares in Selecta BV via an enforcement action by the 1L notes’ security agent, Kroll Trustee Services Limited (“Kroll”), and a couple weeks later on May 13, 2025, the Dutch court gave its blessing to the acquisition.
📍Revolver and Bond. A new €70mm revolver and new €100mm bond to refinance Selecta BV’s prior €150mm revolver, which would be senior to everything 👇.
📍 New Money. The issuance of €160mm of 15% second-out notes due October ‘30 (the “new 2O notes”) by Bidco. €100mm of the new 2O notes would be new money (i) offered to existing 2L noteholders pro rata, for which they’d also receive 62.7%+ of the equity in Topco, provided they agreed to support the transaction, and (ii) backstopped by a subset of the AHG, for which they’ve receive 20% of the equity in Topco as a fee. The balance of new 2O notes would be used to refinance the January ‘25 interim financing.
📍 1L Notes. Each 1L noteholder would receive (i) €850 in new third-out notes (the “new 3O Notes”) for each €1k in 1L notes and (ii) its pro rata share of 15.3% of the equity in Topco, albeit non-voting. The new 3O notes bear interest, for the first two years, at 10% PIK and, thereafter, 13% PIK and mature in November ‘30.
📍 2L Notes. Each 2L noteholder that signed up to a transaction support agreement (the “TSA”) would receive its pro rata share of 1% of the equity in Topco (also non-voting).
📍Pref Equity. Each TSA-signing pref equity holder would receive its pro rata share of 1% of the equity in Topco (ditto).
… BUUUUUTTTTT you might be questioning why the 1L notes would agree to receive discounted, third-out notes at all.
Simple. The deal had a next step. After the transaction closed, Bidco (i) launched the new 2O notes, €100mm cash raise and (ii) invited each newly-minted 3O noteholder to exchange its notes and its non-voting equity entitlement for new first-out notes (the “new 1O notes”). On terms that reversed the discount in step one. Namely, each now-new 3O holder would receive €1k in new 1O notes for each €850 in new 3O notes delivered. The new 1O notes pay 9% cash and mature in September ‘30.
But there’s a catch: for the first twelve months post-issuance, the indenture would only require a 50% vote of the new IO noteholders to amend sacred rights and economics, after which it’d flip to 90%, the same as it had been under the 1L notes’ indenture.
When it was all said and done the org chart flipped as follows:
The transaction closed in June ‘25, so why are we writing on it now?
Because “excluded” 1L noteholders Deltroit Directional Opportunities Master Fund Limited, Algebris UCITS Funds P.L.C., Fineco Asset Management DAC, CQS Credit Multi Asset Fund, CQS Brunel Multi Asset Credit Fund, CQS Alternative Credit Fund, CQS New City High Yield Fund Limited, Mercer Multi-Asset Credit Fund, Faros Point Credit Opportunities Limited (collectively, the “excluded holders”), represented by Faegre Drinker Biddle & Reath LLP (“FDBR”), were pissed off they didn’t get invited to play with the AHG even after they asked (😢), don’t want to live with the new 1O notes’ sh*tty lower consent threshold (😭), and, on October 28, 2025, sued (i) the company, (ii) AHG-members Invesco Ltd., Man Group plc, Strategic Value Partners LLC, Diameter Capital Partners LP, (iii) Selecta CFO and board member Nicole Charriere, (iv) board members Ruud Gabriels, Robert Plooij, Bob Rajan, Jason Clarke, and (v) John Does 1-10 in the Southern District of New York’s district court.
Here’s the complaint:
It contains ten causes of action, but you don’t find one based on an alleged violation of a contract until count five. Followed by count six. Both are asserted breaches of the 1L notes’ indenture against the company and are … uh … weak sauce arguments that any half-awake litigator at K&E, Weil, or PH ought to be able to handle because, best we can tell, FDBR doesn’t understand how enforcing secured creditor remedies works.******
FDBR followed those compelling counts with (i) breach of the duty of good faith and fair dealing, (ii) breach of an English law principle, even though the 1L notes’ indenture expressly chose New York law (WTF??), (iii) tortious interference, and (iv), the last of the kitchen-sink arguments, a standard allegation of director fiduciary duty. We aren’t going to waste time on any of those. Honestly, we wouldn’t be surprised if the precedent FDBR used already had ‘em baked in. It would at least, lol, explain the English law argument.
In any event, we’re here for counts one through four, which are, in order:
Oh sh*t, son, these are antitrust claims. Focused on the cooperation agreement. Someone tell K&E’s David Nemecek his pet theory is finally being put to the test … and his firm can’t do anything but defend since they orchestrated the transactions.
Okay. The PETITION LLC team won’t profess to be antitrust experts — we’re in restructuring like (most of) the lot of you — but, to be 💯 with y’all, the complaint didn’t put the fear of g-d into us. You read the terms, right? Every single 1L noteholder got the same, exact offer; it’s just that the excluded holders didn’t hold >50% of the 1L notes and the AHG did.
It’s not a coincidence that PH’s Jayme Goldstein thinks the argument is … well, we’ll borrow from his recent Notice of Appearance:
We agree. Plus, you know, what are the market incentives we should be aiming for? From the complaint:
Because, to us, provoking the AHG members to (i) dump their holdings into a newco, take their pro rata share of that entity’s equity, and then effectuating the same outcome, (ii) selling their holdings to one chosen member with an agreement to resell them back (or their equivalent) post-restructuring, or (iii) taking any number of mechanical steps to effectuate the same outcome … all seem dumb as f*ck. Especially when, LOL, this is your definition of the market:
One debt instrument from one company, with two whole buyers. Not exactly Amazon ($AMZN) pushing its own products or Apple ($APPL) and Google ($GOOG) restricting their app stores. Or any number of good examples.
We don’t chalk it up to coincidence that Mr. Goldstein and his team “… have already had requests from clients about the need for ‘Selecta Blockers’” to nip his own craftiness, as one of the deal’s architects, in the bud.
We’ll be watching the antitrust action play out, but expect it to land where it belongs.
Regardless, we’re 1,000% certain that’s the fate of the other arguments if there ain’t a settlement (🙅). We’ll end with another shout-out to the firms ☝️. Based on our review, that was a carefully orchestrated masterclass in navigating debt docs and way more entertaining than reviewing the latest first day dec and related dumpster fire.
*At one point, there had also been an ad hoc group of 1L, 2L, and pref equity crossholders, represented by Milbank LLP and Houlihan Lokey, Inc. ($HLI). But that group merged with the AHG. All the same, we wanted to include those firms in our nod too.
**The company also dabbles in coffee systems and other food tech.
***The deal also (i) extended the company’s super senior revolver extended through January ‘26 and (ii) infused, through the issuance of structurally junior pref equity, €175mm into the company courtesy of KKR, €50mm of which came by way of settling issues relating to a temporary senior “liquidity facility.”
****The coop agreement was allegedly replaced in April ‘24, but that’s not really relevant for our purposes. Folks had already been working together for months.
*****Kroll accelerated the 1L notes on the same day, giving rise to the right to enforce remedies.
******We aren’t going to dive deep in the excluded holders’ nonsensical arguments. To give an example, they state:
“… Selecta Group B.V. failed to make an interest payment due to holders of the 1L Notes on January 2, 2025. Consent of holder of 90% or more of the 1L Notes was never given, so no waiver or amendment ever obviated this breach.”
Okay, who cares? The transaction, in which Kroll participated, obviated the issue.
📚Resources📚
We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. 💥You can find the list here💥. We recently added Andrew Ross Sorkin’s newest title, “1929: Inside the Greatest Crash in Wall Street History and How It Shattered a Nation,” and “If Anyone Builds it, Everyone Dies: Why Superhuman AI Would Kill Us All” by Eliezer Yudkowsky and Nate Soares. Both are available now.
🍾Congratulations to…🍾
AlixPartners, LLP (Kathryn McGlynn) for securing the financial advisor mandate on behalf of the official committee of unsecured creditors in the Anthology, Inc. chapter 11 bankruptcy cases.
Jarret Osborne-Revis on his promotion to partner at Buchalter.
Khaled Tarazi on his promotion to partner at Buchalter.
💰New Opportunities💰
PETITION is looking for one MBA and one JD candidate to work with us as paid interns in Q1’26. This is primarily a research and writing position for up to 10-20 hours a week that will give awesome exposure to the worlds of distressed investing, bankruptcy and restructuring. Work is remote. If interested, email us your resume at petition@petition11.com with the subject line “Internship” and we’ll be happy to answer questions. Cheers.