Toys R Us won approval from a Virginia bankruptcy court on Tuesday to access the last remaining third of a $3.1 billion debtor-in-possession loan facility after negotiating with creditors to resolve payment concerns and stating that the company has positioned itself for a strong holiday sales season.
Toys R Us is poised for a successful turnaround, attorneys for the bankrupt toy giant told creditors and the judge presiding over its Chapter 11 case on Tuesday, saying the company is alive and well after repairing its vendor relationships just ahead of the holiday shopping season and that it is taking steps to reinvent itself to compete in an ever-changing marketplace.
Counsel for the company appeared in front of U.S. Bankruptcy Judge Keith L. Phillips seeking approval on a slew of “second-day” motions needed to keep the business operating normally while it attempts to cobble together and confirm a financial restructuring plan. In addition to asking for the authority to use what remains in a $3.1 billion DIP facility after gaining interim access to $2.2 billion, the company also sought final approval to pay critical vendors, continue operating their cash management system, and pay prepetition wages, among other related requests.
Having resolved all formal objections that had been raised in the days leading up to the hearing, Toys R Us attorney Joshua A. Sussberg of Kirkland & Ellis LLP used this opportunity to publicly address the court and stakeholders to share the company’s vision of reorganizing and building around its identity as “the only toy showroom for kids.”
“You don’t get this customer experience at Wal-Mart. You don’t get this customer experience at Target,” he said, citing some of the business’ larger competitors. “You certainly don’t get this customer experience on your smartphone.”
He said the company was reinventing itself to make its online shopping experience more dynamic, but also making the in-store shopping experience more engaging, to entice families to actually make the trip to its store locations instead of purchasing items online or perusing elsewhere.
“Just because a company is in Chapter 11 doesn’t mean it’s going anywhere,” he said. “We frankly believe it’s a company that’s going to be around for quite a long time.”
The New Jersey-based children's toy chain and owner of Babies R Us filed for Chapter 11 protection last month with more than $5 billion in funded debt, stemming in large part from money its owners borrowed in 2005 to fund a $6.6 billion leveraged buyout of the company and take it private.
The retailer is looking to dig itself out of a jam just before the holiday season, when consumers spend more on toys and other gifts than any other time of the year and 40 percent of the merchant's annual revenue is made. The company has said that its nearly 1,600 Toys R Us and Babies R Us locations will remain open and operate as usual.
The commencement of the bankruptcy cases is meant to address near-term liquidity issues and longer-term capital needs, as well as "accomplish a comprehensive reorganization" to improve operations worldwide, the company said in court papers.
Toys R Us is represented by Edward O. Sassower, Joshua A. Sussberg, James H.M. Sprayregen, Anup Sathy, Chad J. Husnick, Robert A. Britton and Emily E. Geier of Kirkland & Ellis LLP and Michael A. Condyles, Peter J. Barrett and Jeremy S. Williams of Kutak Rock LLP.
The case is In re: Toys R Us Inc. et al., case number 3:17-bk-34665, in the U.S. Bankruptcy Court for the Eastern District of Virginia.
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