Toys “R” Us Inc is making preparations for a liquidation of its bankrupt US operations after so far failing to find a buyer or reach a debt-restructuring deal with lenders, people familiar with the matter said.
While the situation is still fluid, a shutdown of the US division has become increasingly likely, said the people, who asked not to be identified because the information is private.
Hopes are fading that a buyer would emerge to keep some of the business operating or that lenders would agree on the terms of a debt restructuring, the people said.
The toy chain’s US division entered bankruptcy in September last year, planning to emerge with a leaner business model and more manageable debt.
A new US$3.1 billion loan was obtained to keep the stores open during the turnaround effort, but results worsened more than expected during the Christmas holidays, casting doubt on the chain’s viability.
The situation has also deteriorated for many of the retailer’s overseas divisions, which were not part of the bankruptcy.
Toys “R” Us’ UK 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 is not yet clear what would happen to the Canadian unit, which filed at the same time as the US division.
The downfall of Toys “R” Us can be traced back to a US$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, such as Amazon.com Inc, weighed on results.
The company’s massive interest payments also sucked up resources that could have gone toward technology and improving operations.
Facing broader concerns about the brick-and-mortar industry, the company was finally pushed to hire debt-restructuring advisers last year.
Its worsening situation, along with reports that it was considering bankruptcy, spooked vendors — with about 40 percent of them ceasing shipments and forcing the company to seek court protection.
That quick descent meant the retailer entered bankruptcy without a plan for how to restructure its debt, which made finding a way to exit more difficult.
The company entered this year with more than 800 stores in the US — under both the Toys “R” Us and Babies “R” Us brands.
In January, it announced the shuttering of 180 locations.
Toys “R” Us generated US$11.5 billion in sales in 2016.
In the 12 months through September last year, sales declined 5 percent and although the company had not reported an annual profit since its 2013 fiscal year because of interest payments, its operating income had risen 22 percent to US$460 million.
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