A number of you have written me in regard to reports that Toys R Us, one of our tentpole retailers, is seeking counsel from a law firm specializing in restructuring. (see: "Toys R Us and Bankruptcy; don't worry but be alert" and "A World Without Toys R Us"). I have continued to follow this story closely and today I have discovered some important new information.
It seems that September 26 is going to be a very important date in this developing story. Here is how a Forbes article by Debtwire, "Toys R Us Seeks Investors To Back Rescue Financing, Bankruptcy Contingency Plans", puts it:
Toys [R Us] provided Debtwire with the following statement: As we previously discussed on our first quarter earnings call, Toys“R”Us is evaluating a range of alternatives to address our 2018 debt maturities. We expect to provide an update about these activities, as well as the many initiatives underway to provide an outstanding customer experience in our global retail locations and webstore during the holiday season, during our second quarter earnings call on 26 September.
In the meantime, CFO.com is reporting that S&P has downgraded Toys R Us bonds from a B- to a CCC+. The article by Matthew Heller, "Toys R Us Seeks Investors To Back Rescue Financing, Bankruptcy Contingency Plans", states that the downgrade comes as a result of the report last week that Toys R Us had hired a law firm that specializes in restructuring.
I called some people who are more familiar with issues of this nature than I am and was told that the S&P downgrade is more of an immediate concern to bond holders than to suppliers.
It means that Toys R Us may be determining how best to handle its "$440 million of debt maturities that come due in 2018 and another $2.6 billion in 2019.
Of note is this statement in the same article: "The downgrade reflects our [S&P's] view that the company may choose to address certain 2018 maturities at less than par or engage in a broader restructuring the rating agency said in a news release. While S&P does not currently expect such a restructuring (bolding is mine)".
A healthy TRU is good for the industry from supply chain to consumer. Let’s hope everyone’s concerns can be satisfied. September 26th is just one week before the Dallas Fall Toy Preview. Until then, stay tuned.