(Bloomberg) — Toys “R” Us Inc. is making preparations for a liquidation of its bankrupt U.S. operations after so far failing to find a buyer or reach a debt restructuring deal with lenders, according to people familiar with the matter.
While the situation is still fluid, a shutdown of the U.S. division has become increasingly likely in recent days, said the people, who asked not to be identified because the information is private. Hopes are fading that a buyer will emerge to keep some of the business operating, or that lenders will agree on terms of a debt restructuring, the people said.
The toy chain’s U.S. division entered bankruptcy in September, planning to emerge with a leaner business model and more manageable debt. A new $3.1 billion loan was obtained to keep the stores open during the turnaround effort, but results worsened more than expected during the holidays, casting doubt on the chain’s viability.
Liquidity moves markets!Click here to learn how you can follow the money.
The situation has also deteriorated for many of the retailer’s overseas divisions, which weren’t part of the bankruptcy. Toys “R” Us’s U.K. unit put itself in the hands of a court administrator after discussions about selling the business fell apart. Its European arm is seeking takeover bids. And talks are being held to offload the growing Asian business, the company’s most profitable arm. It’s not yet clear what will happen to the Canadian unit, which filed at the same time as the U.S. division.
The news sent shares of the biggest toymakers tumbling in late trading. Mattel Inc. fell as much as 6.1 percent, while Hasbro Inc. declined 3 percent.
Toys “R” Us’s $583 million of first-lien bonds due in 2021 dropped as much as 4 cents on the dollar to 83.9, according to bond-pricing system known as Trace. That’s the biggest decline since September, the month the company filed for bankruptcy.
The downfall of Toys “R” Us can be traced back to a $7.5 billion leveraged buyout in 2005, when Bain Capital, KKR & Co. and Vornado Realty Trust loaded the company with debt. For years, the retailer was able to refinance its debt and delay a reckoning. But the emergence of online competitors, like Amazon.com Inc., weighed on results (Bezos’d). The company’s massive interest payments also sucked up resources that could have gone toward technology and improving operations.
Yes, Toys “R” Us joins the list of other retailers shutting down in 2018, where Walgreens, Ascena Retail Group, Rue21 and Starbuck’s Teavana lead the list.
Retail chains continue to close. And this comes when there’s sky-high consumer confidence, unemployment is historically low and the U.S. economy keeps growing. Those are normally all ingredients for a retail boom, yet more chains are filing for bankruptcy and rated distressed than during the financial crisis. That’s caused an increase in the number of delinquent loan payments by malls and shopping centers.
Pittsburgh leads the nation in retail loan delinquencies, but the maps bears a resemblance to the real estate meltdown of 2007-2009 with Phoenix, the Inland Empire of California and Denver reeling. Again.
Bloomberg’s Toys “R” Us headline is far more interesting than another headline: “Russell Crowe selling jock straps, dinosaur skulls and a chariot from Gladiator in ‘divorce auction’” Funny, I didn’t realize that gladiators wore jock straps.
Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I am a contractor for Money Map Press, publisher of Money Morning, Sure Money, and other information products. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. In some cases I receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.