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Toys R Us Lenders Become Stalking Horse for IT Biz

Toys R Us has received permission from a Virginia bankruptcy court to put the computer support operation for its overseas stores on the block next month, backed by a $57.5 million stalking horse credit bid from a term lenders group.

Under a Thursday order, the chain’s shared services business — which includes its worldwide information technology infrastructure and related contracts — will be sold next month, with bids due by Nov. 8, a sale hearing set for Nov. 13 and a stalking horse bid by the company’s term B lenders.

New Jersey-based Toys R Us filed for Chapter 11 protection in September 2016 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 to take the company private. In March the bankrupt toy retailer announced its plan to close all of its 880 U.S. stores and file for liquidation on the same day its U.K. branch announced it would close all 100 of its locations.

In its Oct. 9 bidding procedures motion, Toys R Us said the shared services business provides information technology and related services for the chain’s stores in Canada, Asia and Europe, which continue to operate.

It said under the original versions of the bankruptcy plan the company’s B term lenders were to take control of the services business when the plan became effective, but that given current “business realities,” including the likelihood the company’s interest in its Asian subsidiary will be reorganized or sold on a stand-alone basis, it was decided an auction was the best route.

“The debtor believes that the proposed sale process will afford the most likely purchasers of the shared services business — the now or soon-to-be independent regional enterprises and the Taj noteholders — the opportunity to competitively bid for the assets and assume responsibility for the operations of the shared service business following the consummation of the sale,” it said.

The company said the lenders had agreed to cap their bid at $57.5 million and not participate if there is another qualifying bid.

Counsel for Toys R Us and the ad hoc B-4 noteholder group did not immediately respond to requests for comment Friday.

The bankrupt retailer said in July it had reached a settlement with a group of its North American creditors — including the B-4 noteholder group and its unsecured creditors group — that it said will head off potential legal battles between creditors while setting aside at least $180 million for the administrative claimholders.

Last month, the company canceled plans to auction off its brand marks and intellectual property, saying the auction was unlikely to bring in more money than a plan to create a new branding company.

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 B-4 noteholders are represented by Dion W. Hayes, Sarah B. Boehm and Douglas M. Foley of McGuireWoods and Joshua Feltman, Emil A. Kleinhaus and Angela K. Herring 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.