Toys ‘R’ Us Melts Down, Files for Bankruptcy, Bonds Collapse

Another retailer owned by private equity firms goes bust. Toys ‘R’ Us filed for Chapter 11 bankruptcy late Monday in the US Bankruptcy Court in Richmond, Virginia. The bonds of the largest toy retail chain in the US have gotten crushed, as word was spreading that it was preparing to file for bankruptcy. Standard & Poor’s rates the bonds a merciful CCC-. This is deep into junk, but still two notches above D for ‘default.’
The a $208 million issue of senior unsecured notes due in October 2018 with a coupon of 7.375% had plunged to 46 cents on the dollar on Friday, from 65 on Thursday. Today, they dropped below 21 cents on the dollar before the bankruptcy filing.
They have now plunged 78% since September 4, when they were still trading at 97 cents on the dollar. The plunge of those notes began in earnest on September 6, when it became known that the company had hired law firm Kirkland & Ellis, whose bankruptcy-and-restructuring practice is considered a leader in the industry. That was the sign. At the time, ‘sources familiar with the situation’ said that bankruptcy was one of the options. And all heck broke loose for those bonds.

This post was published at Wolf Street on Sep 18, 2017.