Toys 'R' Us said to hires advisers to help restructure debt

[NEW YORK] Toys "R" Us Inc has tapped lawyers at Kirkland & Ellis to help restructure its heavy debt load, said people familiar with the matter, the latest sign of trouble for a once-mighty retailer that has struggled to fend off Amazon.com Inc and the 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's evaluating a range of options for its 2018 debt load, including the possibility of lining up more financing.

Amy von Walter, a spokeswoman for the Wayne, New Jersey-based company, said it would provide more details during its second-quarter conference call later this month. The company has "many initiatives underway to provide an outstanding customer experience in our global retail locations and web store during the holiday season," she said in an email.

BONDS FALL

The company's US$583 million 12 per cent of first-lien bonds maturing in 2021 dropped 3.9 cents on the US dollar to 92 cents after reports the retailer hired advisers for debt restructuring.

Toys 'R' Us has sufficient liquidity for its needs in 2017 despite a decline in the cash on its balance sheet to US$211 million at the end of the second quarter, according to a Bloomberg Intelligence report in July. 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 the 2017 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 isn't being seriously discussed at this point, people familiar with the matter told Bloomberg.

Toys "R" Us's private equity owners - Bain Capital, KKR & Co and Vornado Realty Trust - loaded up the retailer with debt in a US$7.5 billion buyout more than a decade ago.

Representatives for Bain, KKR and Kirkland & Ellis didn't respond to requests for comment. A representative for Vornado declined to comment.

Last year, the chain extended maturities on some of its borrowings, giving it more time to execute a turnaround plan by chief executive officer Dave Brandon. As part of his comeback bid, he's looking to spruce up stores with more toy demonstrations and other experiences - seeking an edge on online sites such as Amazon.

But it's been a struggle for the chain. Last Christmas brought disappointing results: Same-store sales dropped 2.5 per cent during the final nine weeks of last year, hurt by sluggish demand and deep discounts.

BLOOMBERG