Toys ‘R’ Us seeks OK to wind down U.S. business, liquidate inventory

By Caroline Salls

Pittsburgh, March 15 – Toys “R” Us, Inc. requested court approval to begin the process of conducting an orderly wind-down of its U.S. business and liquidation of inventory in all 735 of the company’s U.S. stores, including stores in Puerto Rico, according to a news release.

In addition, the company said it is pursuing a going-concern reorganization and a sale process for its Canadian and international operations in Asia and Central Europe, including Germany, Austria and Switzerland. Toys “R” Us’ international operations in Australia, France, Poland, Portugal and Spain are considering their options in light of this announcement, including potential sale processes in their respective markets.

In connection with the sale process, the company disclosed that it is in discussions with interested parties for a transaction that could combine up to 200 of the top performing U.S. stores with its Canadian operations.

While discussions continue on this potential transaction, Toys “R” Us said it is seeking court approval to implement the liquidation of inventory in all the U.S. stores, subject to a right to recall any stores included in the proposed Canadian transaction.

The previously announced administration of the company’s U.K. business continues, the release said.

“I am very disappointed with the result, but we no longer have the financial support to continue the company’s U.S. operating,” chairman and chief executive officer Dave Brandon said in the release.

“We are therefore implementing an orderly process to shutter our U.S. operations and will pursue going-concern sales or reorganizations of certain of our international businesses, while our other international businesses consider their options.”

The company said it is working with its advisers to minimize the impact of the U.S. liquidation on the Canadian and other international markets. As part of these efforts, Toys “R” Us is implementing a transition services arrangement for the next 60 days and is developing plans for a potential shared service function to support the international operations going forward.

Funding sought

According to an 8-K filed with the Securities and Exchange Commission, the company will seek to obtain approval of an additional $60 million of funding from its lenders, which will be funded from the escrow account to a bank account of TRU Taj.

Toys “R” Us said the funds will be available for vendor support and working capital, subject to compliance with the terms of the additional funding, the indenture governing TRU Taj’s 11% senior secured ABL DIP notes and its 12% senior secured notes due 2021.

In connection with the TRU Taj financing, TRU Taj also received waivers from its lenders relating to any potential insolvency proceedings of its affiliates in Australia, France, Netherlands, Poland, Portugal and Spain and the bankruptcy filing of its affiliates in the United Kingdom.

Recent results

The company said in the 8-K that it had a $29 million operating loss for the six months ended Feb. 3 on $381 million in net sales.

Cash and cash equivalents at Feb. 3 were $377 million.

Kirkland & Ellis LLP is serving as principal legal counsel to Toys “R” Us, Alvarez & Marsal is serving as restructuring adviser and Lazard is serving as financial adviser.

Toys “R” Us is a Wayne, N.J., toy retailer. The company filed for bankruptcy on Sept. 19, 2017 in the U.S. Bankruptcy Court for the Eastern District of Virginia under Chapter 11 case number 17-34665.

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