New York, N.Y., Sept. 19, 2017 —Toys “R” Us and its subsidiaries (together, the “ Debtors ” or “ Toys R Us ”) filed joint petitions for relief under chapter 11 of the Bankruptcy Code on September 19, 2017 in the Eastern District of Virginia under Case No. 17-34665.[1]

Toys R Us has retained the law firm of Kirkland & Ellis LLP as general bankruptcy counsel, Goodmans LLP for its Canadian subsidiaries, Munger, Tolles & Olson LLP for individual representation, Lazard Frères & Co., LLC as investment banker and financial advisor, Alvarez & Marsal North America, LLC as restructuring advisor, Prime Clerk LLC as as notice and claims agent and administrative advisor, and the firm of Joele Frank, Wilkinson Brimmer Katcher as communications consultant to assist the toy retailer giant with restructuring communications.[2]

Toys R Us, Inc. is the leading international retail brand for children’s toys and games in the growing $87 billion a year global toy market.[3] The 60 year old company was founded in 1948 by Charles Lazarus and since operates nearly 1,600 toy stores in 49 states and 38 countries, operating 365 days each year to its 19 million domestic users and 12 million internationally.[4] In 1978 The Company went public,its first international store in 1984, the first “Babies “R” us in location 1996, and finally its website in 1998.[5] In 2005 Toys “R” Us was acquired for $6.6 billion and taken private[6] allowing it to expand internationally in Asia, with its first store opening in Beijing in 2011, and expanding its global e-commerce presence with a dedicated webstore for China.[7] The Company now hires approximately 60,000 full-time and part-time employees globally, and over 100,000 during the holiday seasonal “pop-up shops” and express stores.[8]

The 2005 acquisition, however expansive, left the retail giant with a $5.3 billion in debt secured by company assets.[9] This left the company operating with crippling debt for over a decade, limiting investment opportunities for the company’s competitiveness.[10] David A. Brandon, Toys R Us CEO since 2015, pointed to the debt burden as the reason for filing bankruptcy, admittedly reporting,

…these substantial debt service obligations impair the Company’s ability to invest in its business and future. As a result, the Company has fallen behind some of its primary competitors on various fronts, including with regard to general upkeep and the condition of our stores, our inability to provide expedited shipping options, and our lack of a subscription-based delivery service. Further, the Company has failed to capitalize on the iconic Toys “R” Us brand and its unique position as a one-stop shop for toys every day year round. The time for change, and reinvestment in operations, has come.[11]

In order to fund the administration of these chapter 11 cases, the Debtors have negotiated three debtor in possession financing.[12] These DIP facilities are “critical to the Debtors’ ability to operate postpetition and make necessary investments in their operations.[13] Chairman and CEO David Brandon stated in his Declaration, that he believes these DIP facilities will allow the Debtors to “maximize the value of their estates for the benefit of all parties in interest.”[14] This funding will provide Toys R Us with the opportunity to “stabilize operations and reset its balance sheet,” and provide the “foundation for negotiations over a massive deleveraging and further investment in the business” to ensure the viability of the Company for many more years.[15]

Cristina Lipan is a bankruptcy attorney and partner with the law firm of Shipkevich PLLC. Cristina is admitted in the Southern and Eastern Districts of New York and regularly practices before the United States Bankruptcy Court. For more information on this matter, you can reach Cristina at  646-867-0098 or at  clipan@shipkevich.com

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• [1] Voluntary Petition for Non-Individuals Filing for Bankruptcy, Doc. No. 1, Case No. 17-34665, S.D. Va. Filed September 19, 2017 (the “Petition”).
• [2] Petition, Omnibus Resolutions, retention of Professionals (No. 17-534665)
• [3] Declaration of David A. Brandon, Chairman of The Board and Chief Executive Officer of Toys “R” Us, Inc., In Support of Chapter 11 Petitions and First Day Motions, Doc. No. 20, Case No. 17- 34665-KLP, S.D. Va. Filed September 19, 2017 (the “Declaration of David A. Brandon”) ¶ 8.
• [4] Declaration of David A. Brandon ¶¶ 8-9.
• [5] Declaration of David A. Brandon ¶ 17.
• [6] Declaration of David A. Brandon ¶ 19.
• [7] Declaration of David A. Brandon ¶ 20.
• [8] Declaration of David A. Brandon ¶ 22.
• [9] Declaration of David A. Brandon ¶ 19.
• [10] Declaration of David A. Brandon ¶ 10.
• [11] Declaration of David A. Brandon ¶ 10.
• [12] Declaration of David A. Brandon ¶ 100.
• [13] Declaration of David A. Brandon ¶ 101.
• [14] Declaration of David A. Brandon ¶ 101.
• [15] Declaration of David A. Brandon ¶ 103.
• Image Credit: Toys R Us Bowling Green, KY by Mike Kalasnik via CC Licensing