OT: Toys R Us Files for Chap 11 Bankruptcy

Submitted by mjv on September 19th, 2017 at 2:24 AM

http://cnnmon.ie/2yahNtN

While the company claims it will continue to operate 1600 stores, bankruptcy filings tend to be the end of the road for retailers. The erosion of the underlying fundamentals of the business won't be changed through the BK process.

(CNNMoney) Toys 'R' Us is filing for bankruptcy protection.

The toy retailer has filed for Chapter 11 bankruptcy protection in the United States, it said in a statement on Monday. Meanwhile, it said its Canadian subsidiary will "seek protection in parallel proceedings" in the Ontario Superior Court of Justice.

The company said it will use the proceedings to restructure its $5 billion outstanding debt.

Despite the bankruptcy filing, Toys 'R' Us said its 1,600 stores worldwide continue to operate. The filing will not include around 255 Toys 'R' Us stores outside the U.S. and Canada.

The New Jersey-based retailer has nearly 65,000 employees globally."

Comments

FauxMo

September 19th, 2017 at 2:35 AM ^

Stores can use the bankruptcy filing process to streamline operations and return (successfully) as a leaner operation that survives. I know, it's unlikely, but it can happen. 

Da Fino

September 19th, 2017 at 5:59 AM ^

Step 1: Assemble an inept yet expensive administrative framework, starting with a call to Lochdogg.  Step 2: Pay boatloads for Facebook posts promoting buy-two-get-the-third-free for Nora The Explorer DVDs.  Step 3: And if it ain't broke, then..... oh wait!  Darn it!

Uh, nevermind.  Maybe they should just pipe in loud ass crap music over all the stores' PA's and do away with any customer loyalty programs in place.  That'll really get 'em in the doors and move the merch.

RedRum

September 19th, 2017 at 4:27 PM ^

what will likely happen.  Typically, however, the executive team will have to be replaced (Ever After).  A syndicate of debt holders will likely convert debt to equity/control over TRUS then a polished team of MBAs will convince Calpers that TRUS is worthy of going public - They will sell out, the bankers will do well.  Then the new entity will issue debt, more debt, cycle will repeat.  consistantly, however, the shareholders will lose.

 

:-)

mjv

September 19th, 2017 at 2:47 AM ^

It can happen but retailers are inherently at risk due to the damage done to the reputation of the retailer -- brand equity is destroyed, gift cards are voided, customers are more likely to consider alternatives, etc. -- and the competitors which were likely the driving force of the BK become relatively more appealing.

Manufacturers with a clear book of business tend to have a clearer path to a successful restructuring.

chuck bass

September 19th, 2017 at 2:52 AM ^

Feel bad for the 65,000 employees – most, I assume, with pretty low skills. The financiers, consultants, law firms and Dave Brandon will all walk away with millions.

LSAClassOf2000

September 19th, 2017 at 8:27 AM ^

Disintermediation has slowly been eating the established stores from the past century alive for over 20 years now. I can remember going to Border's, to Harmony House, to various other stores, almost none of which exist except in a limited fashion if at all now. Toys 'R' Us was going to suffer eventually, and this morning, I think Nieman Marcus announced it was going to scale back, so even higher end retail is taking it on the chin now. 

mGrowOld

September 19th, 2017 at 9:10 AM ^

Here in Cleveland one of the casuality's of the Amazon wars is rhe old Randal Park mall.  It's not in the nicest section of town and it's sat empty and decaying for the past decade or so.

Now it's being repurposed and will allegedly bring in 2,000 new jobs when it's ready to reopen here soon.  Guess what it's being repurposed as?  An Amazon fufillment center.  

To me that's the ultimate in corporate irony.  Amazon kills the big box retail stores but needs their space to house the stuff they sell.  Lefe's a circle I guess.

https://www.clevescene.com/scene-and-heard/archives/2017/07/20/an-amazo…

 

Don

September 19th, 2017 at 11:56 AM ^

LBOs are one of the sweetest scams going... borrow a bunch of money to purchase another company, stick the company you've purchased with the costs of the loan you plopped on their balance sheet, suck out whatever assets you can, and walk away when the timing is right for you.

There's been many references to Best Buy in this thread. BB pays $18 million per quarter in interest. TRU pays $107 million per quarter in interest, a huge portion of that due to the debt that Bain and the other two partners saddled TRU with via the LBO.

"Toys R Us has been attempting to grow into its highly levered balance sheet for arguably the last 12 years – ever since its $6.6 billion leveraged buyout by an investor group led by KKR, Bain Capital and Vornado Realty Trust.

Since then, the company has weathered the consumer pullback spawned by the financial crisis, as well as the dramatic change in shopping habits wrought by online shopping and the Amazon behemoth. Through it all, the company managed to continue refinancing and extending various tranches of the over $5 billion debtload that it took on to back the 2005 LBO.

But Toys’ earnings have continued a downward trend this year, and it faces $440 million of debt maturities in 2018 followed by $2.6 billion in 2019 that it’s so far been unable to address. In recent months, the company hired outside advisors from both Lazard and Kirkland & Ellis that specialize in restructuring to help map out a plan. Increasingly, investors acknowledge that plan could include a bankruptcy filing of one or more Toys entities, sources told Debtwire."

https://www.forbes.com/sites/debtwire/2017/09/08/toys-r-us-seeks-invest…

 

Yeoman

September 19th, 2017 at 10:56 PM ^

About 15 years ago an annual report from a small company crossed my desk and in the fine print was a note that the CEO's compensation agreement had been amended and in future he would receive a fixed percentage of the assets of the firm. Gross, not net.

Needless to say, he immediately leveraged the crap out of the place, borrowing everything in sight so as to maximize assets, and his pay the next year was more than the company's revenues. Gross, not net.

The board revisited his contract at year's end but he'd already bled them dry. The company was gone a year later. Wish I could remember the name of the CEO, or the company--I'd like to see what he's doing now.

bacon

September 19th, 2017 at 4:24 AM ^

I'm sure Dave will go down with the ship. Actually, if Toys R Us wants to be really successful, they should get rid of DB. Dominos stock is up 20x since they got rid of him and we all know what happened at Michigan since we got rid of him.

MgoHillbilly

September 19th, 2017 at 6:28 AM ^

Maybe that's why he was hired in the first place? DB is like Dane Cook in Good Luck Chuck. Not only because they're both douche bags, but because after getting screwed by them, happiness was a certainty with whoever was next.

 

Maybe fun of my analogy, but it's always acceptable to watch a bad movie so long as Jessica alba is in it. 

rainingmaize

September 19th, 2017 at 4:41 AM ^

This is ironic considering that Dave Brandon's mantra of "if it ain't broke, break it" should be a perfect match for a company such as Toys 'R' Us that is in desperate need of a reimagining. However while DB walked into a shitty situation, he's done nothing to fix the problem or significantly reinvent. It makes complete sense however after reading Endzone. DB cleaned house at Michigan so that he could bring in a bunch of yes men, people that wouldn't try to reject his ideas. That's the complete opposite of what a succesful business leader should do, and in this case, the lack of outside voices and alternative minded thinkers will doom a company that needs reimagining. Granted I don't know if he has cleaned house at Toys 'R' Us, but if he follows the same playbook he had at Michigan, Toys 'R' Us is doomed. 

MadMatt

September 19th, 2017 at 8:22 AM ^

Was to continue a program to abuse the H-1B visa program to outsource to India the jobs of people who had worked for the company for years.

He was hired in June 2015.

The previous spring, Toys R Us started bringing in consultants from Tata Consulting Services on H-1B visas to create detailed job manuals for the work Toys R Us employees performed.  The manuals were then used by employees in India when the jobs were moved overseas.  In March, 70 Toys R Us employees, most professionals from the accounting department and many who hade worked for the company over 10 years, were brought into a conference room.  They were told the people from Tata were here to create the job manuals; their positions would be eliminated by November, and the company expected them to "be professional" in training the Tata consultants how to do their job.  Oh, and if they wanted any severance package at all, they had to sign a confidentiality agreement (so all of the sources for the NY Times article below are confidential.)

https://www.nytimes.com/2015/09/30/us/toys-r-us-brings-temporary-foreig…

 

Frieze Memorial

September 19th, 2017 at 6:53 AM ^

Whatsoever things are true, whatsoever things are honest, whatsoever things are just, whatsoever things are pure, whatsoever things are of good report: Dave Brandon likely had nothing to do with any of those things.

Everyone Murders

September 19th, 2017 at 7:39 AM ^

For all the well-earned snark toward Dave Brandon, this Ch. 11 is likely all part of the ultimate plan.  Have PE come in as a debtor-in-possession lender, trim the assets and gather cash, and run to the court for a reorg?  That's a familiar path when culling assets from a troubled organization.  This is not necessarily a "Dave Brandon is a failure" story.

(And about the employees left stranded in the wake of such action?  The PE investors maybe care a whit about them in concept.  But only in concept.)

WolveJD

September 19th, 2017 at 7:53 AM ^

Former Corporate Bankruptcy Geek: It'll be interesting what kind of management retention order TRUs will file as part of their first-day pleadings. Normally a corporate debtor will file some motion authorizing retention bonuses for existing management to incentivize them to stay during the reorganization. Given the "market" for DB's services, I would be curious if the bonus is more than a used XBox 360.