It’s Over for Toys ‘R’ Us: Liquidation Next

Despite earlier denials.

Toys ‘R’ Us, after it filed for Chapter 11 bankruptcy last September to restructure its debts, vowed that it would go on as a company and not even close any stores. It blamed the media for having caused this problem by reporting that it had hired a bankruptcy law firm. This piece of information had, it said, caused about 40% of its suppliers to halt shipments just before the crucial holiday selling period. So it had to seek bankruptcy protection, it said. Going forward, it would try to renegotiate its debts or try to find a buyer. But none of it worked out.

The company, at the time of it bankruptcy filing, had about 1,700 stores globally, with about 800 in the US under the Toys ‘R’ Us and Babies ‘R’ Us brands. It also had $5.2 billion in long-term debt and negative equity of $1.3 billion. In other words, what was left at the time was just a hollowed-out shell.

Today it was leaked that the company is preparing for liquidation in the US as it couldn’t find a buyer and couldn’t get the creditors to agree to take massive haircuts in a restructuring deal. It plans to close and liquidate all its operations in the US, “people familiar with the matter” told Bloomberg:

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.

On February 21, CNBC reported that Toys ‘R’ Us was at risk of breaching a covenant on a $3.1-billion debtor-in-possession loan. A group of lenders led by J.P. Morgan Chase had extended the DIP loan to fund its operations during the bankruptcy proceedings. The covenant required that Toys ‘R’ Us keep a certain amount of cash on hand. But after bleeding cash throughout the holiday period, these cash levels were low. If the company is deemed to be in breach, the lenders could demand to be paid back the entire loan immediately, which could force Toys ‘R’ Us into liquidation.

Toys ‘R’ Us immediately came out swinging in full damage control, just like it had done in September, blaming the media. “We have not breached any covenants,” said a spokeswoman at the time. The CNBC report that it was at risk of being forced into liquidation was “full of speculation,” she said.

What’s left to liquidate? Despite its vows in September not to close any stores, it had obtained court approval earlier this year to close 182 stores in the US and shed 4,500 workers along with them. Then on February 21, the Wall Street Journal reported that the company would close 200 more stores and lay off more people, cutting its footprint in the US in half since the bankruptcy filing. But even that isn’t going to be enough.

Toys ‘R’ Us is another one of many private-equity stories that form the core of the brick-and-mortar meltdown. In 2005, during the leveraged buyout boom, PE firms Kohlberg Kravis Roberts (KKR), Vornado Realty Trust, and Bain Capital Partners acquired the shares of Toys ‘R’ Us for $6.6 billion. The firms funded the deal in large part by using Toys ‘R’ Us to borrow the money to fund its own acquisition – hence “leveraged buyout.” This operation stripped out cash and left the company buckling under its debts.

Toys ‘R’ Us is an international company with an ownership structure that allowed the overseas operations to be kept out of the US bankruptcy. But Toys ‘R’ Us in Canada filed for creditor protection at about the same time as the US filing. And on February 28, Toys ‘R’ Us in the UK collapsed into “administration” – a similar procedure where a court administrator attempts to restructure or sell the company. If this fails, liquidation of the UK entity looms, and about 3,000 jobs would be at risk in the UK.

The company is also in talks to sell its 85% state in the 400-store Asian operations to the Fung Group in Hong Kong which already owns the remaining 15%.

Retailers are notoriously hard to restructure because they have few unencumbered assets and way too much debt by the time they collapse. If they once owned their own stores, they sold them to raise money and leased them back from the new landlord, or they mortgaged them to the hilt and in case of a default, the lender takes possession of them. Shareholders usually lose everything. Many junior creditors get wiped out or nearly wiped out, and suppliers can be strung out too. But given the nature of DIP loans, it’s unlikely that the banks would feel the pain on the $3.1 billion they lent to Toys ‘R’ Us. And this is the beginning of the final and messy chapter of another failed retailer LBO.

A former unicorn gets trampled by 150 other startups and by grocery giants too. Read…  Blue Apron Shares Hit New Low, as Anyone Can Do “Meal Kits,” Even Walmart

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  74 comments for “It’s Over for Toys ‘R’ Us: Liquidation Next

  1. MF says:

    I love how it’s everyone else’s fault and has nothing to do with excess debt. Zero. Nada.

    • Wolf Richter says:

      Did you get to the part about the $5.2 billion in debt (2nd paragraph), the $3.1 billion DIP loan (5th paragraph) and the LBO and the PE firms KKR et al (8th paragraph)? It’s ALL about excess debt.

      Bankruptcies occur because the company cannot handle its obligations.

      • TheDona says:

        Wolf, I think he meant the TRU excuses….the media’s fault, the vendor’s fault.

        • Wolf Richter says:

          OK, maybe I read it wrong. MF, could you weigh in?

        • MF says:

          Yes, I was referring to TRU pointing to everyone and everything else — besides the real cause; debt — to blame.

          Ironic that the “media”, which is supposedly a bunch of attack dogs causing their demise, lets them get away with the excuses (aside from a few exceptions, but the exceptions prove the rule in this case).

          If you really sift through the cause-and-effect, there is only one conclusion: private equity (aka rich people) strip mined a company because they could. Now they point fingers and everyone falls for it, which I find astonishing. But hey, they got richer and the ends justify the means, right?

        • Wolf Richter says:

          Thanks, MF. And sorry.

      • Matt P says:

        He was being sarcastic.

        • MF says:


          Sorry about the sarcasm. I guess I feel it’s better than inchoate ranting when I’m so thoroughly disgusted.

          The focus of most of the stories is about the stock tanking, the investors, the lenders that stand to lose, etc. etc. I’m sorry/not sorry that I don’t care about these things. Some rich people lost a bet. So what?

          What we don’t know is how many families have been destroyed since the LBO because nobody has bothered to even ask the question, let alone count them.

          I get so furious. Sarcasm results.

      • Justnobody says:

        This is the world of Fiat. After all Fiat is debt.

    • robt says:

      Kind of like when financial companies say they have a temporary liquidity problem, not a solvency problem, and all the bad news stories and nasty rumors are to blame.

    • Gregg says:

      I am so happy to live in a country where the Public Enemy (PE) Mafia can get away with Legalized Bustouts (LBOs) to fund their lavish lifestyles, multi-million dollar yachts, private airplanes and SHTF bolt holes in New Zealand. Ain’t America just grand? MAUL (Make Americans Unemployed Losers) baby! /sarc

      • turlock says:

        First became aware of this legal crime with the slow bleedout of Woolworth in the 1970 timeframe. The LBO guys come in and use the target’s own balance sheet to borrow as much as possible to fund a takeover AND award pirate ransom to themselves. Workers, shareholders,bondholders all get screwed. How an this possibly be legal???

  2. bkennedy says:


  3. 2banana says:

    And there it is…

    And why it keeps happening over and over.


    “Shareholders usually lose everything. Many junior creditors get wiped out or nearly wiped out, and suppliers can be strung out too. But given the nature of DIP loans, it’s unlikely that the banks would feel the pain on the $3.1 billion they lent to Toys ‘R’ Us.”

  4. Bookdoc says:

    Interesting how many of these operations have gone through at least one leveraged buyout. It seems that often leads too a company going under from debt even though they had had high value real estate until it was sold off to generate profits and support debt. Someone’s making money out of it…
    I’m not an economist but it doesn’t look right even with the rise of Internet shopping.

    • Frederick says:

      Speaking of making money Is Jon Corzine outof prison yet?

    • MC01 says:

      Wolf Richter is one of the very few who have described very clearly and in layman’s terms the usual destiny of a retail chain purchased by a Private Equity (PE) firm: read any of his articles here about the retail meltdown and the dynamics will become depressingly similar after the third “victim”.

      But “asset strip mining” is not limited to retail. Take airlines. Alitalia, Italy’s perpetually bankrupt flag carrier (literally: the company is presently under bankruptcy protection… for the third time in under a decade) sold all of their aircraft to raise some quick cash, then leased them back at not exactly favorable conditions.
      The company has been so stripped of assets to keep it going for another day without painful but necessary decisions, from luggage handling companies to maintenance facilities, there’s literally nothing left that could attract those mythical buyers the extravagantly paid company doctors assure everybody are waiting outside their doors carrying large suitcases filled with equally mythical cash.

      And that’s the big problem with these companies: why would anybody want them? They have absolutely nothing of interest left, only a faded name and big piles of IOU’s.

    • Juanfo says:

      They sell the valuable real estate, keep the money and cut out the shareholders.

      • RepubAnon says:

        Leveraged buy-outs should be outlawed. All they do is require publicly-traded companies to take on enough debt to make it difficult to use the company’s own assets as security for the loans needed for the buy-out.

        Alternatively, add a clawback provision to the bankruptcy code requiring the takeover artists to return all the funds they extracted from the takeover target if that company files bankruptcy within, say,10 years of the leveraged buy-out.

  5. jrmcdowell says:

    “This operation stripped out cash and left the company buckling under its debts.”

    These type of private equity deals are in some ways a microcosm for what is taking place in the broader economy. Think of the United States as a company that has undergone a leveraged buyout by the top 0.1% and it’s really not all that different. In too many of these PE deals, the acquiring parties grease the palms of the existing management, load debt on the company’s balance sheet and subsequently take the loot for themselves. Later on, it will be the small worker who loses his job.

    Similarly, in the country, the ultra-rich pay-off the politicians and then extract the wealth via different mechanisms such as money printing, bond-price (interest rate) fixing, corporate tax holidays, and excessive executive compensation while the nation’s balance sheet is laden with debt. Net result? The national debt of the US is about $21T and the net worth of the top 0.1% is about $22T. Well played!

    While the US will not file for bankruptcy, many of the opportunities for economic and social mobility of the bottom economic half of the population are being liquidated. Is the system capable of reforming itself to be made more balanced and fair?

    • Nomad says:

      I don’t think it is a microcosm at all.
      It’s a big fat mirror of the rent seeking behavior going on in practically every corner of this country.

      One of the tricks that large LBO firms use is to purchase at just enough of a “premium” to essentially force a sale as the company board has to satisfy their fiduciary responsibility to shareholders….then here comes more debt than is even remotely serviceable, which they are able to get away with because of the bankers covering the “brand name” firms.

    • walter map says:

      “These type of private equity deals are in some ways a microcosm for what is taking place in the broader economy . . . ”

      And that is exactly why I have been saying that the US economy is being liquidated. It explains a lot of things.

      Things ought to be better for everybody, lots better. Workers are more efficient than ever, business processes are more efficient, the economy is lots bigger and keeps growing. So on and so forth.

      Instead things are worse. Debt is skyrocketing, everywhere, poverty is on the rise, jobs are worse, schools and roads are falling apart, pensions can’t be paid.

      Where did all the money go? Teachers and firefighters and the poor and so-called greedy government get the blame, but sure they don’t have it. Who does? It’s the bloody corporatists and the financiers at the top. They’re not just taking all the new economic growth. They’re taking all the OLD economic growth created in the past and all that will be created in the future. And they want more, they want all of it, and they’re getting it, because they can. They’re bleeding to death every country they can and everybody in them.

      LBOs are not their only tool. They’re using every tool available. They’ve bought up the government, and bought up most of the news media, and invented scapegoats like blacks and immigrants and women and Mooslims, to make sure people blame somebody, anybody, except them for this parlous state of affairs.

      I disbelieve that the real US economy is growing. How can it be when most people are getting poorer and the country is falling apart? No, it is the financial economy that is growing, faster than the real economy is shrinking, which only makes it seem that the economy is growing. And the way GDP is calculated makes it easy to perpetuate the illusion, but it is only an illusion. And it gets worse the more you look at it.

      • Bobber says:

        Interesting points. One consolation is that most of the wealth of the top 1% is paper that can evaporate in a heartbeat. Also, the millennials must be betting sick and tired of the abuse, and they will have a voting majority soon as the wealthy boomers die off.

      • David says:

        This has shown up in the Qanon posts and his/their followers if anyone here has been following.

        Literally trillions has been skimmed off over the last decades.

        A swamp indeed.

        • Frederick says:

          Rumsfeld said two trillion was “missing” from the Pentagon budget on Sept 10, 2001 How does two trillion dollars go “missing”?

    • kam says:

      All of the conjured up debt and the electronic money printing, granted gratis to our .01%, is guaranteed by the public, signed by the public’s agent- the politicians.
      Loans at 20% interest rates is not free, loans approaching 0-1% are free.
      The best return on investment is buying a politician. And 99% of them are for sale.

    • chris hauser says:


      cheap plastic fantasy based toys have given way to cheap virtual fantasies that have no need of store destinations.

      an interesting flow chart would be…….where did the money go?

  6. Gregg says:

    This is one more in an endless stream of examples of the elites MAUL* plan while they laugh their asses off sailing about on their $100 million yachts.

    *Make Americans Unemployed Losers

    • Frederick says:

      They probably should stop laughing now don’t you think? They would if they knew how many people are on to them I suspect History does tend to repeat doesn’t it?

      • Bead says:

        No, keep on laughing. Give the people the proper medications and they will remain becalmed. Are you freaking out about your debt? I have something that will make you feel better. It’s feudalism with a human face.

        • Frederick says:

          Just pop an extra Xanax and everything will feel better And wash it down with a couple beers right?

    • William Smith says:

      Love the acronym! But it’s not just Americans in the sights of the “elites”. Their plan is to export 3rd world poverty everywhere and make [A]ll people unemployed losers. And it’s working very well!

  7. Night-Train says:

    I have a friend who went to work for a large department store chain while in high school. Continued part-time during college and into the manager trainee after. He zoomed up the management ladder and became a store manager at a young age. Then multistore supervisor.

    This was in the early 90s. The parent company of the chain had been on an acquisition phase and as you can guess, they took it too far. Then they try to get all of the high paid management folks to quit. Demotion to store manager. Transferred all over the region from store to store with little notice and short stays.

    He was lucky. He lived frugally and maxed out his participation in their stock option plan. He was laid off at 41 and retired the same day. He was the exception. Many people were hurt. My point is, retail over expansion isn’t a recent phenomenon. And the one we are currently working through won’t be the last.

    • kam says:

      I keep wondering how the internet version of the Sears catalogue (Amazon) is going to fare, as compared to Toys-R-Us.
      A computer, distribution- what is so unique that would be a barrier to entry.

      • Night-Train says:

        Kam. I have no answer for that. I have been asking the same question since Amazon started. I assumed that outfits who were brick and mortar and had a healthy mail order in place were ahead of the game. Time has not been kind to my assumption.

      • chris Hauser says:

        what is so unique is that they got there first, and are constantly working to stay there. it is not a hugely profitable proposition, unless you own the little interstices that make it a worthwhile exercise.

        not that i approve.

    • RD Blakeslee says:

      “He was lucky. He lived frugally and maxed out his participation in …”

      In what way are frugal people “lucky” for their financial security ?

      • Night-Train says:

        Good point. And he was making these decisions at a time most of his cohort were fully committed to living in the right neighborhood and driving the right cars. And let tomorrow take care of itself.

  8. Tony of CA says:

    LBO should be outlawed. They are nothing but asset stripping operations. It’s predatory capitalism at its’ worst.

    • Why? If the company is wreck-able, wreck it. Has anybody been in a Toys ‘R’ Us store lately? It’s a lot easier to buy your imported Chinese plastic on-line.

    • Bobber says:

      Not sure I agree. The people that buy stock in these companies are making a choice. The employees that work for these companies are making a choice. Maybe its time that employees shun companies that make poor financial decisions, instead of being sheep to the slaughter. If they did that, the companies would never get off the ground. All you have to do is look at the debt rating of the company.

      We have to preserve freedoms, including freedom to fail. We don’t want governments dictating our lives. Role of government in these affairs is to fight corruption, preserve the environment, and provide a modest safety net so people don’t die as a result of financial matters. Our government has failed on the corruption front. It’s bought by special interests.

      • Cynic says:

        Freedom to fail is indeed important – it’s healthy, both for companies and individuals.

        But it is also, surely something of a fiction to suppose that workers make any meaningful choice when finding a job and are free to select decent companies.

        Like supposing that the contract imposed on a worker is entirely voluntary and freely entered into in all its aspects.

        One is free, and one is not free……

        • Disgusted says:

          Every “Choice” have ever been offered has been a “False Choice” that only benefits the one making the offer. I have never had the power to effect the decision. When I need a job in order to eat and live a minimalist lifestyle, true choice is not an option.

      • RD Blakeslee says:

        “Maybe its time that employees shun companies that make poor financial decisions…”

        Employee victims of these leveraged buy-outs often worked for one of these these companies far before their company became a target.

      • Alistair McLaughlin says:

        Wrecking a company simply because it is wreckable hardly sounds like a responsible use of borrowed funds.

      • Duke De Guise says:

        To equate the choices investors have in which company to place their capital in with the “choices” workers have over which shitty job to suffer abuse in is preposterous, and brings to mind Anatole France’s quote that the majesty of the law equally forbids the rich and poor from sleeping under bridges.

        Please re-examine your Glibertarian assumptions.

    • kam says:

      LBO’s depend on cheap money. The lower the Feds keep rates, the higher the margins in trading labor for capital. And the more unemployed in America.

      • Frederick says:

        But but the unemployment rate is at a very low 4.1percent right? Or maybe NOT

    • Beard681 says:

      The phony low interest rates promulgated by the money printing FED is what makes leveraged buy outs possible. The stupid (or corrupt) yield chasing fund managers who don’t know or care who or why they lend the money are the ones who deserve to lose their shirts.

      What kind of idiots lend money to companies just so they can pay dividends or buy their own stock.

    • Beard681 says:

      No, it is not asset stripping, it is a debt scam. They owners borrow way more money than they can pay back, use it to pay themselves dividends and then hide behind the limitation on claw backs for ill gotten gains.

      Increase the time period for dividend claw backs and the predatory LBOs will stop.

      • turlock says:

        I agree. The paradox involves how attractive the target is. If the target has been run responsibly, has good debt ratios, cash on hand, etc. it is prime for looting. If the target is a poorly run basket case, the thieves don’t give it a second look. Kinda prompts management to self enrich before somebody else steals the pie.

  9. matt says:

    Claire’s is next Wolf. Missing bond payment on the 13. Mall space is about to get very cheap again

    • MC01 says:

      Apparently the present owner, Apollo Global Management, has reached a deal with Claire’s creditors, which include at least four large capital management firms, by which the creditors will take control of the ailing retailer.
      There really isn’t much left: Apollo GM paid the Schaefer family, Claire’s original owners, $3.1 billion in 2007 and between 2013 and 2017 added something like 2,700 stores globally. This translated into a crushing debt load, even at present depressed rates: what forced Apollo GM to the negotiating table was a measly US $60 million interest payment, a pittance compared to what’s coming due in 2019.

      A Chapter 11 bankruptcy may keep creditors at bay for a little while but Claire’s problems run very deep and are shared by dozens if not hundreds of retail/service chains worldwide. Apart from the LBO still weighing down the company and operating in what can only be called a cutthroat market (if you go out of fashion you are done for), Claire’s had embarked on a global expansionary campaign with very little regard to both the markets they were expanding into and especially if said markets could absorb 2,700 new Claire’s stores.

      • Steve clayton says:

        I feel sorry for the employees of both companies losing their jobs but the stuff they sell was just cheap tatt made in china. Toys r us in the UK stores were just terrible.

  10. endeavor says:

    And yet today’s release of the February jobs fantasy claims a 50k increase in retail employment.

    • Kasadour says:

      Haha yup- time to raise the daily interest rate! Can’t have it both ways.

  11. Kasadour says:

    That name Bain Capital keeps popping up re private equity companies. Mitt Romney is a partner, or was a partner in Bain Capital.

    Btw- What benefit does it give to lie about the situation? I don’t get that. It is what it is.

    • Michael Fiorillo says:

      Deval Patrick, former governor of Massachusetts and a likely Democratic candidate for President in 2020, is also a partner at Bain.

      Economic predation and parasitism are bi-partisan endeavors under the best government money can buy.

  12. phil m says:

    I was a vendor who had an office inside of Grand Union’s corporate HDQ’s and observed as they went through the process of shutting their doors in 2001.
    GU was founded in the 1870’s and was once a jewel in the supermarket universe. They had their own canning facility, they operated debt free. In the 1970’s, Sir James Goldsmith initiated the first of what would be a string LBO’s. The end result over the next 30 years was a variety of corporate managers cashing out and living well and a corporate entity that died a slow death until they shut their doors completely. Sad to watch.

  13. RD Blakeslee says:

    “Victims”: Save yourselves! Plan to leave the city for a self-sustaining homestead when your employment goes away.

    Right now “obsolescent” small farm tractors and implements are dirt cheap. Looky there! A a double entendre! (often miscalled, along with every other figure of speech and joke, a pun).

    But I’m not joking! Been there, done that. After my six months in Wolf’s purgatory, I will give you-all the URL to a description.

  14. raxadian says:

    So, in how many countries are “leveraged buyouts.” illegal?

  15. Alex says:

    I don’t see how retail employment numbers are going up with national chains closing stores by the hundreds and thousands. Call bullshit on employment numbers?

    • Wolf Richter says:

      Good point and question. But no.

      The employment numbers — at least “not seasonally adjusted” year-over-year comparisons — are a decent picture of hiring trends. But “retail” (sales were up over 5% year-over-year) has many categories, not just brick-and-mortar. Retail is employment by retailers, which includes those that have thriving online businesses and that are hiring for those divisions.

      For example, between the peak in Dec 2000 and Dec 2017, department store employment has plunged 28%, or by 543,000. In Feb, it dropped another 1.1%

      In terms of details in February, on a YOY and NSA basis:

      Some retailers were creating jobs: auto dealers (service!), building materials stores, grocery stores…

      Other retailers were shedding jobs: clothing stores, electronics stores, health and personal care stores, sporting goods stores, general merchandise stores, department stores, miscellaneous retailers such as toy stores…

      The latter are the “under-attack” brick-and-mortar retailers. Those that are creating jobs are the “online-resistant” retailers. You can get the sales trends by category here:

  16. MCH says:

    Thank God I can still buy my toys from Jeff. B. Distributed by Amazon of Washington state, and manufactured in China.

    I wonder some times how nervous the manufacturers get that in the primary market, their options for channels are slowly eroding. Wonder if the Chinese manufacturer will think in short term horizons like how much of the fiber communications companies in North America thought back in 1998. Which has helped to usher in wonderful Huawei.

  17. LouisDeLaSmart says:

    Though at first one might think that this is something bad given the loss of jobs and personal stress caused by the same, in a greater scheme of things this is an excellent indicator that the economy might still work. Somebody is looking at numbers and making necessary decisions. (I just sounded like a politician…Sorry…job loss is a very bad feeling).
    On the other hand investors need to start pushing themselves and start asking the tough questions…where is this all going and for how long can we keep up?

  18. Rates says:

    After Toys R Us it will be Murica heading towards liquidation.

  19. Silly Me says:

    I still don’t understand why the obvious criminal setup of betting on the future of significant structures and assets is legal, while the parties betting can easily manipulate the outcome, because they already have the money and, consequently, the power.

    I understand that startups normally need capital froman an IPO or need to issue more stocks in order to finance R&D (well, as just about all companies pursue immediate profits not at the cost of the future, the second option is becoming forgettable ), but what’s the point when the whole world is now run by a few corporate cartels?

    Doing away with the Stock Market seems the only solution, but that would only solidify the already-hopeless situation.

  20. Old School Dad says:

    Christmastime. Toys-R-Us. Looking for the classic card game ROOK. (Yep, it’s still being printed and played.) No, they didn’t carry it. Walls of stuff, though. A whole big box store full of stuff. Veritable walls of Lego sets of all sorts (mostly for making specific things, mind you, not generic challenge your imagination sets), Star Wars figures, endless movie spin off junk – the overwhelming majority of which was made of plastic, boxed in cardboard, and wrapped in plastic. A few “classic” toys and games, on one forlorn aisle. But no ROOK. After looking into their inventory computer, a helpful employee suggested I might find the card game at WALMART. Which I did, as a matter of fact. But I walked out of that T-R-U without leaving a single cent in their registers. I’m thinking a lot of other parents did too.

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