Fitch still may up Toys 'R' Us

Fitch Ratings said it will maintain the Rating Watch positive for Toys 'R' Us, Inc. pending the outcome of the company's initial public offering announced in May.

Some proceeds of the IPO will be used for debt repayment, which will result in adjusted debt-to-EBITDAR ratio falling to below 5.5x for fiscal 2011 ending Jan. 28, 2012 from 6.4x at July 31, the agency said.

Fitch expects to upgrade the issuer default rating to B+ from B.

Ratings reflect Toys' successful operating strategy, which resulted in improved operating results and credit metrics in the last 12 months ending July 31, despite the challenging operating environment, the agency said.

Ratings also reflect expectation for further strengthening of credit metrics in fiscal 2010 and fiscal 2011 with positive free cash flow generation and improved liquidity, the agency noted.

This is balanced by the intense competition in the toy retailing sector and the highly seasonal nature of Toys' business, Fitch said.

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