Toys ‘R’ Us, Inc. and its affiliates have filed for chapter 11 bankruptcy in the United States Bankruptcy Court, Eastern District of Virginia, Richmond Division. Sands Anderson’s attorneys attended today’s “First Day” hearings held before the honorable Keith L. Phillips and below is our report.

Toys ‘R’ Us company facts

• Toys ‘R’ Us operates 568 domestic stores and 780 international toy stores.
• In 2005, Toys ‘R’ Us was taken private in a transaction valued at $6.6 billion.
• Today, Toys ‘R’ Us has approximately $5.3 billion of debt and 3,600 active vendor relationships.
• The company has term loans in the amount of $184 million that mature on May 25, 2018.
• Without refinancing or adequate liquidity on hand to satisfy the maturity of that debt, the company would have been required to include a going concern notation on its second quarter 2017 Form 10-Q filings with the Securities and Exchange Commission.

Toys ‘R’ Us liquidity tightened at the worst possible time.

Forty percent of the company’s annual sales occur in the 4^th quarter. Toys ‘R’ Us typically begins to build holiday inventory in September. On September 6, 2017, a news story broke indicating that the company was considering bankruptcy. Within 7 days of that story, 40% of its vendors refused to ship goods unless they received cash on delivery, cash in advance, or, in some cases, payment of all outstanding obligations. Many credit insurers and factoring parties withdrew support. The company indicates that it had to file bankruptcy to save the holiday season.

What Toys ‘R’ wants

The company has a large and complex organizational and capital structure. It is seeking approval for three debtor-in-possession financing facilities that will provide the company more than $3.1 billion in new financing commitments. Toys ‘R’ Us believes this will provide it with sufficient liquidity to:

• stabilize operations,
• implement a holiday business plan, and
• provide breathing room through the holidays to consider (and engage in discussions regarding) restructuring alternatives.

The company also believes it can utilize chapter 11 to:

• close underperforming stores,
• renegotiate lease terms to reduce rent to current market rates,
• create more stores combing the Toys ‘R’ Us and Babies ‘R’ Us brands, and
• open some smaller-footprint stores.