KWCH - Kansas News and Weather - Rainbows United to Receive Emergency Loan, Announces Layoffs

Rainbows United to Receive Emergency Loan, Announces Layoffs

by Cliff Judy (WICHITA, Kan.)

Rainbows United got a loan crucial to keeping its doors open the same day the bankrupt Wichita non-profit announced it'll lay off about a sixth of its workforce.

Rainbows United offers services to children with special needs.  It filed for bankruptcy Thursday night after learning it had millions in debt and back taxes.

In bankruptcy court Friday afternoon, a judge approved a $1.5 million loan from three banks to keep Rainbows' doors open.  The loan came from Emprise Bank, Bank of America, and SNB Bank.

Judge Robert Nugent said he might not have approved a loan for a different company in different circumstances, but noted not approving the loan would be a "fatal blow" to a non-profit that means a lot to the Wichita community.

With payroll and health insurance payments coming up next week, the chairman of the board for the non-profit called the judge's decision "bittersweet."

"I think the judge stated it very well," said Steve Cox.  "We would not have been able to remain in business without this loan."

Rainbows also announced it plans to lay off 70 employees as early as next week, though a company spokesman said she was not ready to say exactly where the layoffs would come from.

Those who received help from Rainbows hope the non-profit sees a full recovery.  Hayley Minear has cerebral palsy and graduated from Rainbows' pre-school in 1995.  She graduated from Andover High in May, now volunteers for the non-profit, and has plans for college in the fall.

"I really think a lot of them and was surprised to hear what they had to say," says Minear.  "I hope they get everything sorted out."

Two Rainbows buildings will also close, the Ritchie Center on South Whittier and the Family Enrichment Center on South Broadway.

For a full listing of restructuring moves Rainbows United is planning on, see below.

Latest Update:

A bankruptcy judge allows a $1.5 million loan to Rainbows United. The loan will help the non-profit continue operating while going through bankruptcy.

In their efforts to reorganize, Rainbows announced on Friday it planned to:

• Laying off approximately 70 employees
  
• Selling assets, including two buildings: the Ritchie Family Center at 251 S. Whittier, and Family Enrichment Center location at 340 S. Broadway
  
• Consolidating services at its remaining two locations - Kids' Cove at 2258 N. Lakeway Circle, and Kids' Point at 3223 N. Oliver
  
• Shifting the structure of center-based services to focus primarily on children with special needs and children at-risk ages 3-5
  
• Downsizing child care options for typically-developing children.

Rainbows United officially files for chapter 11 bankruptcy protection. The filing came late Thursday night after the non-profit reported finding "financial irregularities" earlier this week.

A representative from Rainbows United says the organization has about $14 million in assets and $5.6 million in liabilities. Those liabilities include $2.3 million in unpaid federal withholding taxes.

Rainbows United says the organizations cash position necessitated the filing. Officials say the filing will free up emergency financing to help the non-profit through the restructuring process. Meanwhile, outside auditors will continue looking into Rainbows' finances to see what went wrong.

Rainbows United serves children with special needs and their families. It services more than 2,600 children in the Wichita metro area.

Read the Entire Bankruptcy Filing (83 Page .pdf File)

By John Boyd & Cliff Judy (WICHITA, Kan.)

A non-profit agency that serves children with special needs and their famlies says it plans to file for Chapter 11 Bankruptcy protection after finding "financial irregularities" in its financial reports.  Rainbows United's board of directors announced the decision after a meeting Tuesday.

Rainbows' Chairman of the Board Steve Cox says the move allows the Board to take the appropriate actions to fix the situation, including possibly accessing emergency interim financing.  For now, Rainbows United will still keep its doors open and provide services to families.

In an interview with Eyewitness News Tuesday night, Cox said he knew the annoucement would be difficult for staff and parents to hear.

"It is terrible," said Cox, who stressed Rainbows will continue to provide services to local families.  "Rainbows provides such good service to so many families in the Wichita area, and to me personally, it is just devastating to have something like this happen."

The board recently accepted the resignation of its Chief Financial Officer, Scott Richards, and started efforts to recruit a Chief Restructuring Officer.

Stephanie Harder, Rainbows' Director of Development, says Richards presented financial reports to the board recently, and a review of those reports found the financial irregularities.

"Financial reports were presented to the board," says Harder.  "They were generated by his office, and they were inaccurate."

Harder says Rainbows United has not filed a criminal report yet and there is no indication of criminal activity at this time.  However, outside auditors are analyzing the situation, and nothing's been ruled out.

Rainbows' President and CEO, Lorraine Dold, has also been placed on paid administrative leave.

Rainbows United says it serves more than 2,600 children aged birth through 5, including more than 2,300 with special needs. The organization, which has 435 full- and part-time employees, serves primarily Sedgwick and Butler counties.

"We are sorry for this development because we know it directly impacts the children and families who benefit from our services and the employees who provide them," Cox said. "We are doing everything we can to address the situation and will continue to communicate as we know more."

Rainbows United Website