Toys 'R' Us 'explores bankruptcy filing as it restructures debt'

NEW YORK • Toys 'R' Us has hired law firm Kirkland & Ellis to help weigh restructuring options ranging from a bankruptcy filing to raising financing as bricks-and- mortar retail goes through a major downturn, according to people familiar with the matter.

The privately held toy retailer has approximately US$5 billion (S$6.7 billion) in debt, of which roughly US$400 million comes due next year.

Toys 'R' Us had roughly US$301 million in cash on its balance sheet as of April 29.

In a statement, the company said it would provide an update on how it planned to deal with its debt when it announced second quarter earnings on Sept 26.

A restructuring would help Toys 'R' Us get its house in order ahead of the all-important holiday season, when the company has its biggest sales surge.

CNBC previously reported on the restructuring efforts, saying that one possible outcome of the deliberations could be bankruptcy. The report rippled through the toy industry and pushed down shares of Mattel and Hasbro.

Bankruptcy is not being seriously discussed at this point, people familiar with the matter told Bloomberg. Toys 'R' Us' private equity owners - Bain Capital, KKR & Co and Vornado Realty Trust - loaded up the retailer with debt in a US$7.5 billion buyout more than a decade ago.

In addition to e-commerce, Toys 'R' Us has seen steep competition from discounters Wal-Mart Stores and Target.

Last year, the chain extended maturities on some of its borrowings, giving it more time to execute a turnaround plan by chief executive officer Dave Brandon.

But, it has been a disappointing season for the firm.

Last Christmas, same-store sales dropped 2.5 per cent during the final nine weeks of last year, hurt by sluggish demand and deep discounts.

The weaknesses have carried into this year, with the company reporting in June a net loss of US$164 million in the fiscal first quarter of 2017, widening from US$126 million a year earlier, CNBC reported.

Its same-store sales dropped 4.1 per cent.

A large portion of Toys 'R' Us' debt is secured by real estate, which could help the company's refinancing prospects, according to Fitch.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 08, 2017, with the headline 'Toys 'R' Us 'explores bankruptcy filing as it restructures debt''. Print Edition | Subscribe