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Not What Investors Orderd For Christmas

07 September 2017 by lberuti

TOYS (Toys "R" Us) was taken private by KKR, Bain Capital and Vornado Realty Trust in a 2005 deal valued at $6.6Bln. Last year, the retailer behind the Toys "R" Us and Babies "R" brands successfully refinanced some of its debt. But after a weak holiday season for toys sales, TOYS was forced to lay off some of its employees in February. Competition has been increasing from both brick and mortar and online players. Big-box stores such as Wal-Mart have for years driven down prices of toys to draw parents into their stores to buy other more expensive goods. E-commerce giant Amazon has become a formidable competitor. TOYS is not the only one to feel the pressure. The number of retail bankruptcies has increased recently, and it has become all the more difficult for leveraged retailers to tap the market. That is why TOYS is looking to address its debt load now, prior to the holiday season, to give its vendors such as Mattel and Hasbro clarity into the company's long term viability to help it continue stock its shelves throughout the holidays. TOYS has hired law firm Kirkland & Ellis to consider its options. An article published yesterday mentioned that one debt restructuring option considered could be a bankruptcy filing. That was enough to spook investors who sent TOYS' risk premium through the roof. So much so that, at the end of the session, TOYS' default probability over the next 5 years had shot up to 72%.