Toys "R" Us Files Chapter 11: Second Largest US Retail Bankruptcy In History

Tyler Durden's picture

Toys “R” Us Inc., the largest US "brick and mortar" toys retailer, filed for bankruptcy late on Monday night, as a result of a crushing post-LBO debt load and relentless competition from warehouse and online retailers, the "latest blow to a retail industry reeling from store closures, sluggish mall traffic and the gravitational pull of Amazon.com" according to Bloomberg.  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, and as vendors halt shipments to the now insolvent retailer.

With assets of $6.9 billion, it’s the second-largest retail bankruptcy, trailing the filing in 2002 by Kmart, which had $14.6 billion in assets.

The company was saddled with debt from a $6.6 billion buyout in 2005 led by KKR, Bain Capital and Vornado Realty Trust. Toys ‘R’ Us has bonds coming due over the next few years that lost most of their value this month.

 

“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.

“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.”

The company listed debt and assets of more than $1 billion in its Chapter 11 filing submitted Monday at the U.S. Bankruptcy Court in Richmond, Virginia (an odd place for such a major bankruptcy filing). Prior to filing, the company said that it had secured more than $3 billion in financing from lenders including a JPMorgan Chase & Co.-led bank syndicate and certain existing lenders to fund operations while it restructures. The money will be critical to provide comfort to Toys "R" Us vendors that they will be paid on time. Yesterday the stocks of some key suppliers such as Hasbro and Mattel were hit in advance of the filing.

When reports surfaced recently that Toys “R” Us was weighing a bankruptcy filing, Chinese toy scooter maker Pinghu Mijia Child Product Co. put all of the retailer’s orders on hold, fearing it wouldn’t get paid, according to sales manager Justin Yu, Bloomberg reported. The toy retailer represents about 10 to 20 percent of the Chinese supplier’s sales. “We were shocked to hear the news last week because their orders to us have been rising every year, so we did not know they were in trouble,” Yu said. “They’re a major buyer and I would say that the majority of toy makers in China would have some contracts with them.”

The bankruptcy filing by the company also may have global implications, especially for Chinese toy manufacturers. Some 38 percent of the company’s revenue came from overseas markets in the latest fiscal year. “It’s a loss for the long-term benefit of the entire industry,” said Lun Leung, chairman of Hong Kong-based Lung Cheong Group, a toy supplier for Hasbro Inc. He said Toys “R” Us accounted for less than 5 percent of the group’s sales.

“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.”

The company's 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.

As an indication of the challenges faced by the struggling retailer, 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.

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.

The shakeout is also reverberating across American malls and shopping districts. More than 10 percent of U.S. retail space, or nearly 1 billion square feet, may need to be closed, converted to other uses or renegotiated for lower rent in coming years, according to data provided to Bloomberg by CoStar Group.

Major retailers including Macy’s and Sears Holding have closed hundreds of locations as they struggle to compete discounters such as Wal-Mart and Amazon.com. 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.

The company's full bankrtupcy filing is below:

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Déjà view's picture

Bankruptcy's "R" Us...

cossack55's picture

More like the "Bain Capital Effect"

NoDebt's picture

"What they have going for them is they are the last major player in their market"

Other than Amazon.

 

Conversation with my son a few years ago while in a Toys-R-Us:

"No, Dad, I want the Zombie Strike nerf gun, not the Tactical Strike version."

"OK, we'll look it up on Amazon when we get home."

And that's the ball game.

 

Gaius Frakkin' Baltar's picture

It's the same shit from China everywhere you go. It's depressing.

You might as well just order it from Amazon and be done with it.

Whoa Dammit's picture

I still miss F.A.O. Schwartz. That was a real toy store.

847328_3527's picture

"Hope & Change" for 8 years has consequences.

MisterMousePotato's picture

Oh, my God.

I'm shocked to hear ToysRUs is having financial difficulties.

Guess I'd better sell my bonds.

JRobby's picture

Leverage it, suck out the cash, dump it into CH 11.

Excessive leverage works in a rapidly expanding economy.........for about 36 months. Problem is, we have not had a rapidly expanding economy in a long time.

jcaz's picture

Yep- this dings KKR and Bain- no sweat off my brow.....

peopledontwanttruth's picture

More like
"And all the kings horses and all the kings men, couldn't put Humpty Dumpty together again"!

Just how much more crap can people buy or need from trinkets to vehicles to houses. Peak consumption has met peak production WITHOUT any money.

It's over

post turtle saver's picture

More like the "Bain Capital Effect"

yep just another "Goodfellas" bust out...

cornflakesdisease's picture

Exactly.  These people also destroyed Guitar Center the same way.

LadyMarmalade's picture

This doesn't surprise me at all.  Once they outgrow the toddler stage, kids don't care about "traditional" toys.  They want tablets...or phones if they're older. 

1033eruth's picture

The yard and garage sale effect

Twaddlefree's picture

It was only the WalMart and Target "affect" in 2005 when TRU was broadcasting its desire to sell off the toy part of the business. It was ALREADY in debt and the passing off of that had to be part of the deal.Then along came the financial crash. TRU has been doomed for many years. Amazon had little to do with it.

 

Stan Smith's picture

... or the 100,000 sq ft. of "premium" rent per store is killing us.    Knock that down by 20% and the numbers dont look as bad.

Sofa King's picture

Fuck 'em...they killed FAO Swartz.

Buck Johnson's picture

Exactly and now they are getting killed.  People really don't need to go to malls anymore.  Most are buying their stuff online and getting it shipped to their home.  Also they don't have to deal with the idiots at the mall from the rampaging kids who are harrassing people to bad service.  The same reason why most theaters are going out of business also.  Unless your an Imax (and even then people don't go to it) most people have their flat screen HD television, surround sound and able to download from their computer cable television any and everything they need to watch in HD and still be in their underwear.

Brick and Mortar is dying, believe it.  They are lucky that our society don't have the ability to have teleportation technology to beam anything you order to your place in minutes. 

 

CRM114's picture

There is also the quality argument for the movies as well as the theaters. Why watch Hollywood's latest formulaic output with the preachy message when you can binge-watch a Blu ray of a series you really like?

Nunyadambizness's picture

Now, THAT would be a game changer!!  Imagine no more vehicles, since one could transport themselves anywhere they wanted to go, or you could transport anything you wanted to wherever you wanted it.  Mix in one of those instant food and booze creators, and I'd never have to leave the house!!  ;-)

KimAsa's picture

Exactly.

superchillin.com.

I haven't been to a theater since . . . well a long time.

1033eruth's picture

The middle and lower end are NOT buying mostly on line.  They are buying at yard/garage sales and thrift stores which is why Goodwill has exploded with store openings.

Twaddlefree's picture

And online auctions and community sales sites such as Varage and Facebook sources.  Prices have declined dramatically in once-pricey goods such as furniture (except at Goodwill stores where they have increased continuously over the last 9 years), while increasing in basic household goods and clothing.

It's also why the IRS is on the trail of yard salers, as well as local governments. Tax revenues are suppressed when sales are hand to hand. The heavy hand of government will either put an end to the sales or impose laws that might as well put an end to them.

overmedicatedundersexed's picture

ho lee fuk? plastic china toys got no market??

Robert Trip's picture

My big concern is whether or not I'll be able to complete my African Safari toy animal collection.

This bankruptcy is a major bummer.

Bill of Rights's picture

Markets will soare on the news ...

yogibear's picture

Anything bad makes the Central banksters algos go bid-happy. Ever new highs as more businesses go bust.

Déjà view's picture

'$talk' Markets "R" Us...

gatorengineer's picture

Parents cant afford toys, and frankly kids dont play with toys anymore... just give em a cell phone and call it good.  Who needs a ball or bat..  LOL

The central planners's picture

Creditors suggested to sell nail guns for years they never heard and now you see the result..

CRM114's picture

Well, kids do still play with balls and bats, but you can get them elsewhere than Toys 'R', better and cheaper.

Gordon_Gekko's picture

Should be good GREAT for stocks. The more the bankruptcies, the higher stocks will rise.

Robert Trip's picture

Another 64,000 Americans on the bread line.

"Make America Great Again."

cstu7011's picture

Market at Record High!!!

GotAFriendInBen's picture

Simply stunned that people stopped flocking tp pay 40 dollars for 2 ounces of cardboard & plastic in a really cool colorful box

They will go public again next year with self-driving Big Wheels for all the fat kids

 

hoist the bs flag's picture

bankruptcy is a sign of green shoots and recovery...

yogibear's picture

Yes, more bankrupcies, the higher stocks go.

Algos go wild, bidding between each other.

ToSoft4Truth's picture

Losing "64,000 employees"

 

I bet locales are giving Amazon anytime they want for the warehouse jobs. 

yogibear's picture

The more employees  that lose jobs the greater stocks rally!

Extremely bullish!

 

overmedicatedundersexed's picture

how big will the exec's bonus be for this chp 11? they always come up with cash for that..good to be king

Cluster_Frak's picture

That bullish. I will buy more stowks today. 

dark pools of soros's picture

Rent is way too high yet the bloodsuckers seem to enjoy killing and stealing the corpses

Catullus's picture

Has a major LBO worked since the mid 1990s?

Umh's picture

That depends on what the meaning of worked is.

Cardinal Fang's picture

Kids are so preoccupied with their electronic games, they don't even know how to open a box with a toy in it.

Literally, the only muscle memory kids have nowadays is with their thumbs.

The other fingers are merely stubs to hold the screen.

Oh Lord, deliver us from this evil.

Amen.