Toys R Us Eyes Potential Bankruptcy Filing

Toys R Us Eyes Potential Bankruptcy Filing

Popular toy retailer Toys R Us is looking to potentially file for bankruptcy due to its massive debt. A spokesman for Kirkland & Ellis declined to comment.

Toys "R" Us has hired restructuring advisers from the prominent law firm Kirkland & Ellis as it tries to cope with hundreds of millions of dollars of debt coming due, according to two people briefed on the matter.

Toys "R" Us also has retained Lazard Ltd to help with debt refinancing, the people said.

Numerous traditional retailers continue to struggle against competitors like Amazon, but the debt load that Toys "R" Us is carrying has increased the pressure. 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. The spokesperson added that executives will provide more information on these activities during the retailer's second quarter conference call on September 26.

Toys R Us was able to successfully refinance some of its debt past year, which gave the retailer more time to figure things out before facing billions in debt repayments.

Making those sorts of investments is tough when a retailer is on the hook for $3.5 billion over the next three years, much of it a legacy of a leveraged buyout by private equity firms.

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"While the decision of Toys R Us to appoint restructuring advisors is not necessarily a sign that bankruptcy is imminent, it is an indication that the company is in a very uncomfortable financial position", Neil Saunders, managing director of GlobalData Retail, said, according to Fortune.

The company was acquired by Bain Capital and Kohlberg Kravis Roberts two private equity companies, as well as Vornado Realty Trust, a real estate company, in 2005 for the price of $6 billion.

Saunders noted that Toys "R" Us is challenged on many fronts, including that it suffers competition from online and physical "generalists" who discount toys to drive customer traffic, and that its large stores are "increasingly unsuited to what consumers want and expect".

MSNBC reports the company now owes $5 billion, $400 million of which is due by next year.

The company will hold is second quarter earnings call next Tuesday.