Toys R Us Inc. on Tuesday asked a Virginia bankruptcy court for permission to delay for three months decisions on which store leases to maintain so that all of its locations can remain open during the holiday season, while the U.S. Trustee blasted the retailer's request to pay workers up to $100 million in bonuses.
Shortly after the company's request on leases, the trustee filed a motion Wednesday claiming a proposed bonus plan — which the company said was needed for holiday-season motivation — lacks the specifics needed to determine if the goals are reasonable and the payments fair. In September, the New Jersey-based toy chain filed for Chapter 11 protection 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 when 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 Tuesday motion asked the court to extend the deadline for deciding whether to assume or reject unexpired leases — currently due to expire Jan. 16 — for an additional 90 days.
“Accordingly, to the extent the debtors determine to close any locations, doing so by the current deadline would almost certainly require store closings during the most profitable season,” it said.
The company had also cited the pressures of dealing with a holiday season under Chapter 11 as a reason for the employee incentive program it proposed to the court two weeks ago.
The proposed program would pay 17 “insider” executives, including CEO David Brandon, $16 million if the company hits an earnings before interest, tax, depreciation and amortization goal of $550 million for the 2017 fiscal year. Those payments could reach $32 million if the company clears $616 million for the year, it said.
The same targets apply to just over 3,700 “non-insider” employees, with $58.5 million in bonuses for reaching the lower target and $68.7 million for the greater.
Trustee Judy Robbin, however, argued the payments were not tied to cash flow or creditor recovery but are based on “adjusted” earning figures that could be subject to manipulation, and no evidence had been provided to back the company’s claims the thresholds would be a challenge to meet.
“The bonus motion fails to state what extra services the executives would perform beyond their ordinary job duties if they were not additionally incentivized or to detail the nexus between the proposed bonuses and increased hours and responsibilities, if any,” she said.
She also said there was no evidence that the beneficiaries of the “non-insider” plan were not insiders. She said the job titles of most of the eligible employees have not been provided, but that 80 are identified as either vice presidents or directors.
“Given their titles, these employees are presumed to be officers and, thus, fall within the definition of ‘insider,’” she said.
Counsel for Toys R Us did not immediately respond to requests for comment Wednesday. Representatives of the U.S. Trustee’s office declined comment.
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 U.S. Trustee is represented by Robert V. Van Arsdale, Shannon Pecoraro and Lynn A, Kohen.
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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