Toys ‘R’ Us lenders may swap US$760 million in debt for Asian unit

Signage is displayed on the exterior of a Toys ‘R’ Us retail store in the Queens borough of New York, US. (Bloomberg pic)

DELAWARE: Senior lenders to Toys “R” Us Inc. will make an opening bid of US$760 million for the bankrupt retailer’s Asia operations, far less than the US$1 billion offers the company touted just a few months ago.

The lenders would make a so-called “credit bid” by using their senior secured notes in the Asia business rather than cash, and win ownership of the unit during an auction next month in New York, according to court documents filed Saturday. Noteholders eligible to participate include York Capital Management Global Advisors LLC, Barclays Bank Plc and Cerberus Capital Management LP, related court papers show.

Before an auction is scheduled, Toys wants a US federal judge to strip the company’s minority partner in Asia, Fung Retailing Ltd., of its right-of-first-refusal purchase option as well as forcing Fung to agree to sell its 15% stake in the joint venture.

Toys’s 12% first-lien bonds that mature in 2021 fell more than 5 cents to 70.5 cents on the dollar on Monday, the biggest drop since they were issued in 2016, according to Trace bond price data.

In April, a lawyer for Toys told the judge overseeing the company’s bankruptcy that it had multiple bids worth more than US$1 billion for the Asia business. Toys owns nearly 85% of the venture and Fung owns the rest.

Noncommittal Buyers
Since then, Toys has been unable to get one of the potential buyers to commit, according to court documents. The company blamed interference by Fung.

A representative for Fung working on the Toys’s case didn’t return an email seeking comment.

By naming the lender group as the so-called stalking horse bidder, Toys would set the ground floor for the proposed September auction.

After filing for bankruptcy last year, Toys struggled to reorganize its complicated debt structure and save the company’s US operations. When that effort failed earlier this year, Toys began liquidating its worldwide operations, selling its Canadian and central European businesses and shutting down is US stores.

The liquidation sales may not bring in enough money to even cover the cost of the bankruptcy, with suppliers, lawyers and former employees all seeking payment for services they provided after Toys sought court protection in September.

On Sunday, the company filed an outline of how it plans to split among creditors the money it has raised from selling assets. But the document left out any estimates of how much creditors are likely to recover.

The case is Toys “R” Us, 17-34665, US Bankruptcy Court, Eastern District of Virginia (Richmond)