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Toys R Us Clears Bidding Procedures for Over 270 Stores

Toys R Us Inc. received court approval Thursday to implement proposed real estate bidding and sale procedures as it liquidates its business in the U.S., putting in place a timeline for the retail giant to sell its ownership or lease interests at close to 275 locations by the end of June.

The Virginia bankruptcy judge presiding over the Chapter 11 case for Toys R Us said the hobbled toy chain had employed “sound business judgment” in its proposal of procedures to offload the remaining real estate holdings of subsidiary Toys R Us-Delaware Inc. In approving the company’s motion, U.S. Bankruptcy Judge Keith L. Phillips gave the retailer a clearer path to complete its liquidation process by its target date of June 30.

Toys R Us attorney Emily E. Geier of Kirkland & Ellis LLP said the procedures were substantially similar to ones previously approved by the court for a round of store sales earlier this year. Although groups of landlords had objected to the bidding and sales procedure motion filed last month, the debtors were able to resolve much of their concerns ahead of the hearing, Geier said.

Specifically, the landlords had said that portions of the timeline were too short for them to meaningfully evaluate each proposed sale and that other procedures would also complicate their review process. With some adjustments to allow the landlords more time and leeway to inspect selected bids, the objectors’ issues were substantially resolved, attorneys for the parties said Thursday.

“We’re very comfortable with the flexibility that’s accorded,” noted a lawyer for the unsecured creditors’ committee.

The New Jersey-based children's toy chain and owner of Babies R Us filed for Chapter 11 protection in September 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 had hoped to dig itself out of a jam just before the 2017 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 bankruptcy cases were commenced 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 at the time, while securing funds to keep its shelves stocked.

But after a lackluster holiday sales season, Toys R Us announced in March that it will wind down operations and liquidate inventory at more than 700 stores in the U.S. instead of trying to reorganize.

While the company’s presence in the U.S. is vanishing, the brand will persist to some extent in Canada, as Judge Phillips last month approved an agreement by Toys R Us to sell its 82 Canadian stores and related assets for roughly $235 million to Toronto-based Fairfax Financial Holdings Ltd.

The company’s Canadian asset sale came on the heels of a failed effort by billionaire Isaac Larian, the CEO of toymaker MGA Entertainment Inc., to purchase Toys R Us out of bankruptcy.

Toys R Us is represented by Edward O. Sassower, Joshua A. Sussberg, James H.M. Sprayregen, Anup Sathy, Chad J. Husnick and Emily E. Geier of Kirkland & Ellis LLP and Michael A. Condyles, Peter J. Barrett and Jeremy S. Williams of Kutak Rock LLP.

The unsecured creditors’ committee is represented by Kenneth H. Eckstein, Robert T. Schmidt, Stephen D. Zide and Rachael L. Ringer of Kramer Levin Naftalis & Frankel LLP, and by Cullen D. Speckhart, Olya Antle and Joshua D. Stiff Wolcott Rivers Gates.

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.