Toys “R” Us Inc., which has struggled to lift its fortunes since a buyout loaded the retailer with debt more than a decade ago, is preparing a bankruptcy filing as soon as today, according to people familiar with the situation.
The Chapter 11 reorganization of America’s largest toy chain would deal another blow to a brick-and-mortar industry that’s already reeling from store closures, sluggish mall traffic and the threat of Amazon.com Inc. Filing for bankruptcy would allow Toys “R” Us to restructure $400 million in debt that comes due next year, potentially letting the chain rebuild as a leaner organization.
“Finally, the straw broke the camel’s back.” With speculation of a bankruptcy mounting, shares of Toys “R” Us’s vendors tumbled on Monday.
A representative for Toys “R” Us declined to comment.
Bankruptcy Financing JPMorgan Chase & Co., Barclays Plc, Goldman Sachs Group Inc. and Wells Fargo & Co. are said to be vying to provide financing for Toys “R” Us while it goes through bankruptcy.
Much of the toy supplier’s debt is the legacy of a $7.5 billion leveraged buyout more than a decade ago.
In 2005, Bain Capital, KKR & Co. and Vornado Realty Trust loaded Toys “R” Us up with debt to take it private.
“With these debt levels, how much actual flexibility do you have in this environment?” asked Charles O’Shea, who covers Toys “R” Us for Moody’s Corp. “You have to invest online – because your principal competitors there are really good – and you’ve got to deal with the debt load and your maturities on top of that. The pie is only so big.” Chapter 11 also will help the company get out of burdensome leases, said Craig Johnson, head of Customer Growth Partners.