Toys 'R' Us seeks bankruptcy to survive retail upheaval

Toys ‘R’ Us Inc, the largest U.S. toy store chain, which filed for bankruptcy late Monday, will ask a judge on Tuesday for permission to borrow money so that it can start paying suppliers to ensure it has Lego building blocks and Barbie dolls for the holiday season.

The Chapter 11 filing, to restructure $5 billion of long-term debt, is among the largest ever by a specialty retailer and casts doubt over the future of the company’s 64,000 employees and nearly 1,600 stores, which remain open.

The collapse came swiftly.

Reports earlier this month that the company hired a law firm that specializes in bankruptcy set off “a dangerous game of dominoes,” David Brandon, the company’s chief executive and chairman, said in a court filing.

Ten days later, nearly all the company’s vendors refused to ship products without cash in advance, forcing Toys ‘R’ Us to scramble to raise $1 billion for its nervous suppliers, according to court filings.

The timing could not be worse.

Toys ‘R’ Us is building inventory for the holiday season and fourth quarter, which accounts for 40 percent of net sales.

Toys ‘R’ Us received a commitment for over $3 billion in debtor-in-possession financing from lenders including a JPMorgan-led bank syndicate and certain existing lenders, said the Wayne, New Jersey-based company, which also operates the Babies ‘R’ Us chain.

Chief Executive Dave Brandon said in court filings that he hoped Chapter 11 would enable the company to address the financial constraints that “have held us back” in a “lasting and effective way.”

“Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long-term debt on our balance sheet.”

The company said it plans to spend $64.8 million before 2022 to make it more enjoyable to shop in its stores. The company cautioned it was not going to engage in an “unrelenting race to the bottom” by trying to slash prices to compete with Amazon.com Inc (AMZN.O), the only company that sells more toys than Toys ‘R’ Us.