Toys ‘R’Us files for Chapter 11 as heavy debt and online shopping switch take their toll

BY Fraser Tennant

As a result of a heavy debt load and a consumer switch toward online shopping, toy retailer giant Toys ‘R’Us has voluntarily filed for Chapter 11 bankruptcy protection in the US and Canada.

In addition to the filing in the US Bankruptcy Court for the Eastern District of Virginia in Richmond, VA, the company’s Canadian subsidiary intends to seek protection in parallel proceedings under the Companies’ Creditors Arrangement Act (CCAA) in the Ontario Superior Court of Justice.

Toys ‘R’ Us intends to use the court-supervised proceedings to restructure its outstanding debt and establish a sustainable capital structure that will enable it to invest in long-term growth.

The company’s operations outside the US and Canada, including its approximately 255 licensed stores and joint venture partnership in Asia, which are separate entities, are not part of the Chapter 11 filing and Companies’ Creditors Arrangement Act (CCAA) proceedings.

The vast majority of the approximately 1600 Toys ‘R’Us and Babies ‘R’Us stores around the world – which are mostly profitable – continue to operate as usual.

“Today marks the dawn of a new era at Toys ‘R’Us where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way,” said Dave Brandon, chairman and chief executive of Toys ‘R’ Us. “Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5bn of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business, continue to improve the customer experience in our physical stores and online, and strengthen our competitive position in an increasingly challenging and rapidly changing retail marketplace worldwide.”

Furthermore, the company has received a commitment for over $3bn in debtor-in-possession (DIP) financing from various lenders, including a JPMorgan-led bank syndicate and certain existing lenders, which, subject to court approval, is expected to immediately improve the financial health of Toys ‘R’ Us and support its ongoing operations during the court-supervised process.

Serving as principal legal counsel to Toys ‘R’ Us is Kirkland & Ellis LLP, while Alvarez & Marsal is serving as restructuring adviser and Lazard is serving as financial adviser.

Mr Brandon concluded: “We are confident that these are the right steps to ensure that the iconic Toys’R’Us and Babies ‘R’Us brands live on for many generations.”

News: Toys 'R' Us files for bankruptcy protection in US

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