Party City Holdco Inc. is considering splitting up its balloon manufacturing and retailing businesses as the latter charts a course out of bankruptcy, according to people familiar with the situation.

Party City has held confidential talks with debt holders about spinning off its Anagram unit, said the people, who asked not to be identified because the matter is private. Talks are continuing and the situation may change, they said.

Anagram has a debt stack separate from its parent and didn’t follow most other Party City units into Chapter 11 bankruptcy in January. But the businesses are deeply linked. Party City accounts for around 40% of Anagram’s revenue, according to a Fitch Ratings report from July. The retailer buys almost all of its balloons from Anagram, but has threatened to abandon that contract during bankruptcy.

Messages left with Party City were not returned, while a representative with adviser Moelis & Co. declined to comment.

Anagram’s debt arose from a 2020 financing in which some Party City creditors exchanged their existing holdings to move closer to the prized balloon manufacturer. It was an ill-fated attempt to save Party City — which saw its sales plummet when the Covid-19 pandemic crimped social functions — from bankruptcy.

Party City recently revised a key deal with some of its biggest lenders, tweaking its plan to exit Chapter 11 protection after struggling to meet financial projections.