Toys “R” Us Inc has tapped lawyers at Kirkland & Ellis LLP to help restructure its heavy debt load, people familiar with the matter said, the latest sign of trouble for a once-mighty retailer that has struggled to fend off Amazon.com Inc and discount chains.
The law firm’s restructuring experts are focused on the US$400 million in debt that comes due next year, according to the people, who asked not to be identified because the deliberations are private.
Toys “R” Us also has retained Lazard Ltd to help with debt refinancing, the people said.
A restructuring would help Toys “R” Us get its house in order ahead of the all-important holiday season, when the company has its biggest sales surge.
The chain has previously said that it is evaluating a range of options for next year’s debt load, including the possibility of lining up more financing.
Amy von Walter, a spokeswoman for Wayne, New Jersey-based Toys “R” Us, said it would provide more details during its second-quarter conference call later this month.
The company has “many initiatives under way to provide an outstanding customer experience in our global retail locations and Web store during the holiday season,” she said in an e-mail.
Toys “R” Us has sufficient liquidity for its needs this year, despite a decline in the cash on its balance sheet to US$211 million at the end of the second quarter, a July Bloomberg Intelligence report showed.
The combined effect of an increased borrowing base and use of payables for seasonal inventory adds to revolver availability that should be enough to navigate this year’s holiday shopping season, analyst Noel Hebert said in the report.
CNBC previously reported on the restructuring efforts, saying that one possible outcome of the deliberations could be bankruptcy.
The report rippled through the toy industry and pushed down shares of Mattel Inc and Hasbro Inc.
Bankruptcy is not being seriously discussed at this point, people familiar with the matter told Bloomberg.
Toys “R” Us’ private equity owners — Bain Capital LP, KKR & Co LP and Vornado Realty Trust — loaded up the retailer with debt in a US$7.5 billion buyout more than a decade ago.
Toys “R” Us CEO Dave Brandon is looking to spruce up stores with more toy demonstrations and other experiences — seeking an edge on online sites such as Amazon.
However, it has been a struggle for the chain.
Christmas last year brought disappointing results: Same-store sales dropped 2.5 percent during the final nine weeks of the year, hurt by sluggish demand and deep discounts.
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