Toys R Us on Tuesday told a Virginia bankruptcy court that it has reached a settlement with the holders of the majority of its U.S. debt that will guarantee $200 million for administrative claim holders and smooth the way to its Chapter 11 liquidation.
The company asked the court to approve the settlement between it and a group of its North American creditors — including its unsecured creditors and a noteholder group — that it said will head off potential legal battles between creditors while setting aside at least $200 million for the administrative claim holders.
“The settlement agreement parties have all concluded that litigation of issues and claims otherwise resolved pursuant to the settlement agreement would derail the debtors’ efforts to facilitate an orderly and value-maximizing wind-down of U.S. operations for the benefit of all stakeholders,” it said
Toys R Us began pursuing a wind-down of its 60-year-old U.S. business in March after suffering a lackluster holiday sales season. The company decided to liquidate inventory at more than 700 stores in the U.S. instead of trying to reorganize six months after filing for Chapter 11 bankruptcy.
The company said the settlement agreement was the result of negotiations between it and a number of groups and firms, including the Unsecured Creditors Committee, an ad hoc group of vendors with post-petition administrative claims and an ad hoc group of holders of its B-4 notes. The company said the B-4 noteholders currently hold 68 percent of its prepetition secured claims and 47 percent of its debtor-in-possession claims.
Toys R Us said the vendors, term DIP lenders and secured lenders had potentially significant claims and causes of action.
“While the creditors’ committee did identify substantial potential claims against the prepetition secured parties (which those parties contested), there remained a serious chance that there would be essentially no value left for any creditor of the North American debtors other than the secured creditors absent significant litigation or a negotiated resolution,” it said.
Under the terms of the deal, $200 million will be set aside to pay administrative claims. In addition, if recoveries for the B-4 noteholders from the estates of Toys R Us subsidiaries Toys R Us – Delaware and Wayne Real Estate exceed approximately $500 million, the excess will be split between secured noteholders and administrative claims.
The settlement would end any legal claims by the participants against the B-4 noteholders and any preference actions against the unsecured creditors and post-petition creditors. Claims against Toys R Us directors and officers would be preserved and placed in a trust for the benefit of administrative claimholders.
Counsel for Toys R Us, the unsecured creditors and the noteholders did not immediately respond to requests for comment late Thursday.
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 are represented by Cullen D. Speckhart, Olya Antle and Joshua D. Stiff of Wolcott Rivers Gates and Kenneth H. Eckstein, Robert T. Schmidt, Stephen D. Zide and Rachael L. Ringer of Kramer Levin Naftalis & Frankel LLP.
The B-4 noteholders are represented by Dion W. Hayes, Sarah B. Boehm and Douglas M. Foley of McGuireWoods and Emil A. Kleinhaus of Wachtell Lipton Rosen & Katz.
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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