Another One Bites The Dust: Toys ‘R’ Us Files For Bankruptcy

The retail death spiral drags on, and this week we have a new victim: Toys “R” Us.

The eponymous toy store has filed for Chapter 11 bankruptcy protection as of Sept. 18 and hopes to begin a restructuring that will allow it to revamp its long-term debt.

And it is a lot of debt: $5 billion at last count.

The debt load came care of a 2005 $7.5 billion buyout by private equity investors KKR, Bain Capital, and Vornado Realty Trust. The nation’s largest specialty toy store faces $400 million in debt payment due in 2018, which was onerous enough that the company hired Kirkland & Ellis, a law firm that specializes in corporate restructurings, in June.

The U.S. bankruptcy will be sought in parallel to a Canadian equivalent. All stores outside those nations — approximately 255 licensed stores and a joint venture partnership in Asia — are separate entities and are not included in this bankruptcy filing.

As of now, the approximately 1,600 Toys “R” Us and Babies “R” Us brick-and-mortar retail locations around the world will continue to operate as usual. The brand further released that it has secured a commitment from some lenders, including a syndicate led by JPMorgan, for around $3 billion in debtor-in-possession financing.

“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 CEO. “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, 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.”

That debtor-in-financing deal is subject to bankruptcy court approval.

The filing, counterintuitively, will allow Toys “R” Us to better brace for the holiday season — a period that is important to all retailers and extremely important to Toys “R” Us. Rumors had been circulating that vendors were ramping back shipments to the chain for fear over its future. The filing, according to analysts, has brought additional clarity to the situation, which has increased vendor comfort.

“We thank our vendors for their ongoing support through this important season and beyond,” Dave Brandon said. “We also appreciate the strong support our investors have provided over time and the constructive role they are playing in this process that will allow us to create a brighter future for our company.”