After much speculation and to the disbelief of Toys “R” Us kids everywhere, the largest toy store chain in the U.S. and home of Geoffrey the Giraffe officially filed for bankruptcy late Monday in Richmond, Virginia.
The Chapter 11 case for TRU-SVC Inc., a holding company for Toys “R” Us Inc., marks the latest casualty in a string of struggling brick-and-mortar retailers. The filing by Toys “R” Us comes nearly three months after the Wayne, New Jersey-based company retained Kirkland & Ellis to help it restructure nearly $5 billion in debt.
Kirkland restructuring partners Joshua Sussberg and Edward Sassower in New York are working alongside Chicago-based partners James Sprayregen, Anup Sathy and Chad Husnick are all serving as lead debtors’ counsel to Toy “R” Us. Sussberg, a cancer survivor, has already picked up bankruptcy roles this year for children’s clothing retailer The Gymboree Corp. and women’s fashion house BCBG Max Azria Group LLC.
Michael Condyles, managing partner of Kutak Rock’s Richmond office, is working with fellow bankruptcy partners Peter Barrett and Jeremy Williams as local counsel to Toys “R” Us. Court filings show that Toronto-based Goodmans has taken the lead for the retailer’s Canadian affiliate for its restructuring under the Companies’ Creditors Arrangement Act, while Munger, Tolles & Olson is counseling independent directors and managers at Toys “R” Us in the bankruptcy case.
None of the four outside law firms seeking to advise Toys “R” Us in its restructuring efforts have yet filed billing statements with the bankruptcy court in Richmond. Earlier this year, Toys “R” Us hired Cornell Boggs, a former general counsel at Dow Corning Corp., to serve as its new in-house legal chief. Boggs replaced David Schwartz, a former Anderson Kill partner who left Toys “R” Us late last year to become general counsel at the Hudson’s Bay Co.
Toys “R” Us originally opened as “Children’s Bargain Town” in 1948 as a baby furniture retailer looking to capitalize on the post-World War II baby boom in Washington, D.C. But its owner, Charles Lazarus, soon began getting requests first for baby toys and then toys for older children. In 1957, the company rebranded itself as Toys “R” Us.
For decades, Toys “R” Us was a master toy retailer, launching Babies “R” Us in 1996. Kids “R” Us, another affiliate of the parent company, closed its doors in 2003. But the rise of mass retail giants like Amazon.com Inc., Target Corp. and Wal-Mart Stores Inc. caused Toys “R” Us to steadily lose its once sizeable share of sales in the toy market.
In 2005, private equity firms Bain Capital Partners LLC and KKR & Co. LP and real estate investment trust Vornado Realty Trust teamed up on a $6.6 billion leveraged buyout of Toys “R” Us. That deal saw Kirkland take the lead for Bain Capital, Latham land a role for KKR, Sullivan & Cromwell counsel Vornado, Simpson Thacher & Bartlett represent Toys “R” Us and Skadden, Arps, Slate, Meagher & Flom advise the company’s board of directors. (Kirkland has also previously done work for KKR and Vornado.)
The going-private transaction left Toys “R” Us with roughly $5.6 billion in long-term debt. In 2010, Toys “R” Us tapped Simpson Thacher to advise on an initial public offering by the company, the proceeds from which would be used to pay down some of its massive debt load. But Toys “R” Us withdrew its proposed IPO in 2013, citing adverse market conditions. By the next year, the company was already speaking with bondholders about a debt refinancing plan.
Prime Clerk LLC, a New York-based bankruptcy claims administrator started by former Weil, Gotshal & Manges restructuring partner Shai Waisman, is now managing the docket for Toys “R” Us’ Chapter 11 case. Jones Day has filed an appearance with the bankruptcy court on behalf of El Segundo, California-based toy maker Mattel Inc., which is owed $135.6 million by Toys “R” Us, making it the company’s second-largest unsecured creditor.
JPMorgan Case & Co.—advised by Davis Polk & Wardwell and Hunton & Williams—and other lenders have agreed to provide $3 billion in debtor-in-possession financing to Toys “R” Us in order to help the company continue its operations during bankruptcy. The debtor will keep open its nearly 1,600 stores in 49 states and 38 countries ahead of the holiday season, when Toys “R” Us generates about 40 percent of its annual revenue.
David Brandon, CEO and board chairman of Toys “R” Us, stated in a declaration to the bankruptcy court that DIP funds will provide the foundation for the company to invest in its business and ensure that the Toys “R” Us brand remains visible for years to come.
“The company commenced these Chapter 11 cases to address its near-term liquidity issues, longer-term capital need and accomplish a comprehensive reorganization that will enable Toys “R” Us to turnaround and simply make better its business for the millions of Toys “R” Us kids around the globe,” Brandon said. “This turnaround begins today.”