Toys R Us Inc. won approval from a Virginia bankruptcy court on Thursday to sell the majority stake of its business operations in Asia to a group of senior investors for $760 million as part of a Chapter 11 liquidation plan that provides creditor recoveries and releases potential claims between stakeholders.
Toys R Us has overcome another large hurdle in its liquidating process after mounting a failed attempt to reorganize in Chapter 11 proceedings. U.S. Bankruptcy Judge Keith L. Phillips, who last month approved a Toys R Us liquidation plan that provides administrative claimholders with a $180 million recovery pool, on Thursday confirmed another plan put forward by a group of the retailer’s subsidiaries that includes a sale of the company’s business across Japan, China and Southeast Asia.
The sale of the debtors’ 85 percent stake in Toys (Labuan) Holding Ltd. and consensual plan of liquidation was made possible through a series of settlements reached between the company, groups of lenders, the unsecured creditors’ committee and a China-based retailing arm of the Fung Group that holds a minority stake in the Asia joint venture.
“This case has been a roller coaster,” Toys R Us attorney Joshua Sussberg told the court. “Everyone in this room was relentless in moving this forward.”
A key to obtaining consensus around the Chapter 11 plan put forward by the so-called “Taj debtors” and “TRU Inc. debtors” was a settlement reached between a number of Toys R Us entities, the creditors’ committee, the lenders holding the company’s intellectual property and the noteholders purchasing the Asia JV equity.
That agreement, approved in conjunction with the debtors’ plan on Thursday, ensures a 15-year brand licensing deal, provides technological support for the Asia JV, settles millions in inter-company claims, resolves disputes over the allocation of professional fees and expenses, and removes the threat of certain creditor litigation in the future.
“This does represent a global settlement of a wide array of issues,” committee attorney Kenneth H. Eckstein of Kramer Levin Naftalis & Frankel LLP told the court.
A Taj noteholder's plan objection was rejected after Judge Phillips said it targeted a settlement he already approved between the Asia JV purchasers and Fung Retailing Ltd. Fung agreed last month to drop its opposition to the sale of the retailer’s Asian business in exchange for $8.25 million and a 6 percent increase of its ownership share in the JV. The judge said the plan does not appear to provide disparate treatment to members of the same creditor class.
“The court is very appreciative of the work that you have done,” he told the parties at the close of the hearing Thursday.
New Jersey-based Toys R Us filed for Chapter 11 protection in September 2017 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 more than 700 stores in the U.S. and liquidate after an abysmal holiday sales season.
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 committee is represented by Cullen D. Speckhart, Olya Antle and Joshua D. Stiff of Wolcott Rivers Gates, and Kenneth H. Eckstein, Adam C. Rogoff, David E. Blabey Jr. and Rachael L. Ringer of Kramer Levin Naftalis & Frankel LLP.
The Taj noteholders committee is represented by Brian S. Hermann, Samuel E. Lovett and Jeffrey J. Recher of Paul Weiss Rifkind Wharton & Garrison LLP, and Christopher A. Jones and Jennifer E. Wuebker of Whiteford Taylor & Preston LLP.
The B-4 noteholders are represented by Sarah B. Boehm and Douglas M. Foley of McGuireWoods and Joshua Feltman, Emil A. Kleinhaus, Joseph C. Celentino and Angela K. Herring of Wachtell Lipton Rosen & Katz.
The bankruptcy 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.