Toys 'R' Us files for bankruptcy ahead of holiday season
(Reuters) - 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 sales.
"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 GlobalData
Retail.
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
statement.
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 Trust <VNO.N>.
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 Inc <M.N> 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 grocers.
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, Virginia.
(Reporting by Tom Hals in Wilmington, Delaware and Subrat Patnaik in
Bengaluru; Additional reporting by Jessica DiNapoli in New York and
Tracy Rucinski in Chicago; Editing by Leslie Adler and Gopakumar
Warrier)
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