S&P lowers Toys 'R' Us rating

Standard & Poor's said it lowered its corporate credit, bank loan, and senior unsecured debt ratings on Toys "R" Us Inc. to BB from BB+. The ratings remain on CreditWatch with negative implications, where they were placed on Jan. 8.

S&P said the rating action follows S&P's completion of an interim review of management's operating strategies and expectations for the business as it is configured. Toys "R" Us is undertaking a major strategic review to determine the optimal configuration and uses of resources for its assets and operations. After the company has announced its findings and its plans, S&P said it will reassess the appropriateness of the BB rating.

S&P said the downgrade is based on the significant drop in profitability at the company's U.S. toy division in 2003 and its inability to improve cash flow protection measures. In addition, S&P believes that management faces significant challenges in turning around the performance of its U.S. toy business given the sizable market share Wal-Mart and Target have amassed and their strategies of using low prices on toys to generate traffic.

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