Toys R Us (Update 2)

6a0133ec87bd6d970b01bb08fe52c6970d Logo (1)News continue to evolve about Toys R Us and a possible debt restructuring. Here is the latest:

Buyer trips to west coast cancelled but Dallas Fall Toy Preview trips still on

I have heard from several sources that Toys R Us has cancelled buyer trips to the west coast. I have also heard, however, that all trips to Dallas are still on.

Bloomberg News report that some toy companies cutting back shipments to Toys R Us

Bloomberg News published an article yesterday, September 14, 2017, entitled "Toys ‘R’ Us Vendors Cut Shipments on Bankruptcy Fear". The article states: "Some suppliers to Toys “R” Us Inc. have scaled back shipments to the retailer as it struggles to refinance debt and avoid a potential bankruptcy filing, according to people with knowledge of the matter." The article goes on to state:

The vendors are balking as Toys “R” Us continues talks with lenders over a new loan that would allow the company to stay open while it works out a recovery plan through bankruptcy proceedings, said the people, who asked not to be identified because discussions are private. The loan is being marketed by Lazard Ltd. to banks and existing creditors, said one of the people. 

The reason given for the pullback on shipments was that the costs to insure sales to Toys R Us was getting too high. Having said that, the article uses the term "scaled back" and "pullback" rather than "cut off" in reference to  shipping products. Also, the article notes that Hasbro put out a statement that read: “We continue to partner and ship, conducting business as usual, while managing our risk across all retailers to the appropriate levels,”

Forbes reports on the potential for the sale of Toys R Us physical property

There was also an article in Forbes entitled : "Toys 'R' Us: No Game Changer For Vornado Realty". The piece, written by Brad Thomas, is a look at Vornado Realty, a Real Estate Investment Trust that owns a substantial stake in Toys R Us. What I found of particular interest in the article was that Vornado's real estate business could play a role in finding a way out for Toys R Us.  

According to the article,"As of January 2017, Toys “R” Us leased 1,383 of its properties out of 1,691 stores, this means there are 308 stores that are on-balance-sheet. If the struggling retailer does not have adequate cash flow and capital resources to service its upcoming debt obligations, the company could seek to monetize its real estate by liquidating assets. I’m not certain who would want to purchase stores currently occupied by Toys “R” Us, but there is clearly a REIT (named Vornado) with an invested stake.

I will continue to keep up with events and keep you posted. 

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