Toys 'R' Us hires firm to help it explore options

Toys "R" Us' debt may have finally caught up with it.



With $400 million in debt coming due in 2018, Toys "R" Us is bringing in advisors to help the retailer weigh its options, which could include filing for bankruptcy protection. The nation's largest specialty toy retailer has hired Kirkland & Ellis, a law firm that specializes in corporate restructurings.



"As we previously discussed on our company's first quarter earnings call, Toys "R" Us is evaluating a range of alternatives to address our 2018 debt maturities, which may include the possibility of obtaining additional financing," Toys "R" Us spokeswoman Amy von Walter said in a statement



Toys "R" Us has been burdened with a heavy debt load since 2005, when it was purchased by private equity investors KKR, Bain Capital, and Vornado Realty Trust in a $7.5 billion buyout. The chain previously announced it is working with Lazard to help address its debt load, and it successfully refinanced some of its debt last year.



"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," commented Neil Saunders, managing director of GlobalData Retail. "For a robust retailer, debt payments can be challenging. For a retailer struggling to generate sales growth while, at the same time, trying to invest to remain relevant -- it can be the difference between success and failure."



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."



"Against this backdrop, Toys “R” Us has to contend with the debt it accumulated as part of the leveraged buyout," Saunders said. "In our view, this is an example of private equity damaging retailers by not running them as commercial trading entities but as ATMs."



in June, Toys "R" Us posted a net loss of $164 million for its first quarter, up from a loss of $126 million a year earlier. Same-store sales fell 4.1%.



Toys "R" Us will report its second quarter earnings on Sept. 26.