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.

RELATED: See all the retailers that filed for bankruptcy this year

11 PHOTOS
Retailers that have filed for bankruptcy in 2017
See Gallery
Retailers that have filed for bankruptcy in 2017

Gordmans Stores

REUTERS/Rick Wilking

Gander Mountain

(Twitter)

General Wireless Operations (formerly RadioShack)

(PAUL J. RICHARDS/AFP/Getty Images)

HHGregg

Photographer: Daniel Acker/Bloomberg via Getty Images

BCBG Max Azria

(Photo by Rob Kim/FilmMagic)

MC Sports

(Twitter)

Eastern Outfitters

(Twitter)

Wet Seal

(Photo by Justin Sullivan/Getty Images)

The Limited

(Photo by Jb Reed/Bloomberg via Getty Images)

Gymboree

Photographer: David Paul Morris/Bloomberg via Getty Images

HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

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>.

26 PHOTOS
The 25 hottest toys of 2017, according to Walmart
See Gallery
The 25 hottest toys of 2017, according to Walmart

Real Workin’ Buddies Mr. Dusty

Price: $40

Walmart

Disney Frozen 12-Volt Ride-On Sleigh

Price: $298

Walmart exclusive

Monster Jam Grave Digger 24-Volt Battery Powered Ride-On

Price: $398

Walmart exclusive

Fisher-Price Zoom 'N Crawl Monster

Price: $35

Imaginext DC Super Friends Batman Batbot Xtreme

Price: $94

Nerf Rival Nemesis MXVII-10K

Price: $88

FurReal Roarin Tyler, the Playful Tiger

Price: $117

Huffy Electric Green Machine 24 Volt Battery-Powered Ride On

Price: $199

Disney Junior Doc McStuffins Baby All in One Nursery

Price: $80

LittleBits Star Wars Droid Inventor Kit

Price: $99

Mattel Barbie DreamHorse

Price: $90

Mattel Cars Florida Speedway 2

Price: $100

MGAEntertainment LOL Surprise Fizz Factory

Price: $33

Num Noms Nail Polish Maker

Price: $45

New Bright 1:14 RC Dash Cam Rock Crawler

Price: $60

Walmart exclusive

New Bright 10 Inch Rc Tumblebee

Price: $25

Adventure Force Light Command Light-up Motorized Blaster

Price: $25

Walmart exclusive

Recoil Starter Set by Skyrocket

Price: $118

Soggy Doggy Board Game

Price: $19

Paw Patrol – My Size Lookout Tower

Price: $100

"Hatchimals Surprise"

Price: TBA

Details for this year's Hatchimals toy have not been released yet, but Walmart still expects it to be a big seller.

Pop-a-Balls Drop & Pop Ball Pit

Price: $50

Walmart exclusive

WowWee Fingerlings

Price: $15

Mayka Toy Block Tape

Price: $17 for a four-pack

Mickey's Transforming Roadster Racer RC

Price: $50

HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

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)

Read Full Story

Can't get enough business news?

Sign up for Finance Report by AOL and get everything from retailer news to the latest IPOs delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.