Fitch: Toys on positive watch

Fitch Ratings said the ratings of Toys 'R' Us, Inc. and its various subsidiary entities remain on Rating Watch positive pending the outcome of the company's initial public offering announced in May 2010 and considering Fitch's expectation that the company's operating results will not deteriorate from current levels.

Toys has a B issuer default rating and CC/RR6 senior notes.

The IPO registration is currently active, Fitch said. Its estimated size of around $800 million and the expected use of the proceeds have not changed.

Upon the completion of the IPO, Toys will pay a termination fee to the sponsors. The remaining balance of the proceeds of the offering will be used primarily for debt repayment, the agency said.

The ratings continue to reflect Toys' ability to maintain relatively flat credit metrics and positive free cash flow generation in fiscal 2010 compared to fiscal 2009 despite some pressure on operating margins, Fitch said.

The Rating Watch reflects the expectations of a strengthening in fiscal 2011 credit metrics as a result of the debt repayment from the IPO proceeds and that Toys' operating performance will not weaken from the current level, the agency added.

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