Toy retailer Toys R Us may file for bankruptcy protection as soon as Monday just ahead of the 4th quarter shopping season.
In an attempt to pay off $5 billion in debt it owes as a result of a leveraged buyout in 2005, the toy retailer is running out of options and time as a $400 million debt payment becomes due in 2018. A Chapter 11 bankruptcy protection filing would allow the retailer to restructure the debt coming due and renegotiate the rest.
Toys ‘R’ Us is owned by private-equity firms Kohlberg Kravis Roberts, Bain Capital Partners and the real-estate investment trust Vornado Realty Trust who bought the company in a deal worth $6.6 billion, taking it private in 2005.
Vendors of the toy giant are becoming nervous. Toy manufacturers Hasbro, Mattel and Jakks Pacific each generated nearly 10% of their overall sales from the retailer in their most recent fiscal years. Shares of Hasbro (HAS) dipped more than 1% as shares of Mattel and Jakks Pacific tumbled 6%. Mattel (MAT) is now trading at its lowest level since the spring of 2009, while Jakks Pacific (JAKK) is at an all-time low.
Not only is Toys ‘R’ Us facing heavy competition from online retailers like Amazon and Walmart, but also a lackluster box office at the movie theaters that drive toy sales has slowed down sales for the entire industry.