Toys ‘R’ Us Inc, the largest U.S.
toy store chain, filed for bankruptcy protection late Monday, the latest sign
of turmoil in the retail industry that is caught in a viselike grip of online
shopping and discount chains.
The Chapter 11 filing is among
the largest ever by a specialty retailer and casts doubt over the future of its
about 1,600 stores and 64,000 employees. It comes just as Toys ‘R’ Us is
gearing up for the holiday shopping season, which accounts for the bulk of its
“While today’s decision does not necessarily
mean it is game over for Toys ‘R’ Us, it brings to a close a turbulent chapter
in the iconic company’s history,” said Neil Saunders, managing director of
Toys ‘R’ Us received a commitment
for over $3 billion in debtor-in-possession financing from lenders including a
JPMorgan-led bank syndicate and certain existing lenders, said the Wayne, New
Jersey-based company, which also operates the Babies ‘R’ Us chain.
The financing, subject to court
approval, reassures its suppliers they will get paid for their Lego building
blocks and Barbie dolls that are being shipped for the holiday season.
“We expect that the financial
constraints that have held us back will be addressed in a lasting and effective
way,” Chief Executive Dave Brandon said.
“Together with our investors, our
objective is to work with our debtholders and other creditors to restructure
the $5 billion of long-term debt on our balance sheet.”
Its Canadian unit intends to seek
protection in parallel proceedings under the Companies’ Creditors Arrangement
Act (CCAA) in the Ontario Superior Court of Justice, Toys ‘R’ Us said in a
Operations outside of the United
States and Canada, including about 255 licensed stores and joint venture
partnerships in Asia, which are separate entities, are not part of the
bankruptcy proceedings, Toys ‘R’ Us said.
The company’s Toys ‘R’ Us and
Babies ‘R’ Us stores and e-commerce sites around the world are open for
business, it said.
The company is saddled with debt
from a $6.6 billion buyout in 2005 led by KKR & Co LP (KKR.N)
and Bain Capital LP, together with real estate investment trust Vornado Realty
Toys ‘R’ Us has bonds coming due
next year that have lost half their value this month, according to Thomson
Reuters data, as investors have grown concerned about a possible bankruptcy.
The company opened a temporary
store in New York City’s Times Square this year to capture more holiday
shoppers, almost two years after it closed its flagship store barely a block
away, driven out by high rents.
“Vendors have cut them off based
upon the rumors of the filing which has not been refuted,” said Jay Indyke, a
bankruptcy attorney with the Cooley law firm.
With assets of $6.9 billion based
on its most recent annual report, it’s the second-largest retail bankruptcy,
trailing the filing in 2002 by Kmart, which had $14.6 billion in assets,
according to research firm Bankruptcydata.com.
More than a dozen significant
retail chains have filed for bankruptcy this year. Among them were Perfumania
Inc, apparel chains rue21 Inc and Gymboree Corp, discount shoe chain Payless
Holdings LLC and designer clothing chain BCBG Max Azria Global Holdings LLC.
Major retailers including Macy’s
and Sears Holding Corp (SHLD.O)
have closed hundreds of locations as they struggle to compete discounters such
as Wal-Mart Stores Inc (WMT.N)
and Amazon.com Inc (AMZN.O).
Amazon’s recent acquisition of high-end grocer Whole Foods Markets Inc stirred
speculation that the online giant will use its pricing power and huge reach
among U.S. consumers to go after market share of traditional brick-and-mortar
Toys ‘R’ Us is the second-largest
toy seller in the United States behind Amazon, according to consulting firm
Kloster Trading Corp.
“What they have going for them is
they are the last major player in their market,” said David Berliner, a partner
and restructuring specialist with BDO Consulting.
“The vendors don’t want to see
them fail, so I think they have a good opportunity to survive.”
Toys ‘R’ Us filed the petition in
the U.S. Bankruptcy Court for the Eastern District of Virginia in Richmond,