Toys R Us Seeks Investors To Back Rescue Financing, Bankruptcy Contingency Plans – Forbes

By Reshmi Basu and Hema Oza

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.

Albert Herring/ Mike Kalasnik

Toys R Us & Babies R Us York, PA

Bondholders at Tru Taj LLC, one of Toys’ international segments, along with potential new investors, have entered into restricted discussions with Toys and its advisors about raising around $400 million in new secured financing for the retailer. The capital could be used as a short-term rescue to address the 2018 debt maturities, or as a backup it could be structured as debtor-in-possession (DIP) financing, sources said familiar with the talks said. DIPs are super-priority loans used to finance a company’s Chapter 11 bankruptcy process.

Given the company’s hefty consolidated leverage at around 7x its debtload, new capital would have to be directly secured by assets – but Toys’ existing debt agreements present a maze of limitations on securing new debt. The Taj entity currently has modest leverage at 3.6x and offers the possibility of liens on some of the international assets – making Taj a focal point for the liability management talks, sources said.

Holders of the $575 million 12% secured notes due 2021 at Taj have been organizing with advisor GLC Advisors, sources said. The tranche was born last year out of negotiations former holders of a 2017 Delaware holdco bond who worked to swap into new debt at an entity with a more direct claim to international assets, long viewed as the company’s growth spigot.

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