Thoughts From Mary Rae Fouts

Toys ‘R’ Us Chapter 7 Bankruptcy. The once-storied American toy store Toys ‘R’ Us declared Chapter 7 liquidation personal bankruptcy the other day. Today is the company’s first hearing in Bankruptcy Court, where Toys ‘R’ Us will try to defend its personal bankruptcy plan from a hurricane-drive set of objections from lenders.

October 2017, shortly after declaring Chapter 11 personal bankruptcy. And the newest Concord, CA Veranda Mall where in fact the store opened was just as inept to permit a store in Chapter 11 Bankruptcy to go in as a prime tenant. I forecasted Chapter 7 Liquidation Bankruptcy for Toys ‘R’ Us this past year, following the ongoing company announced Section 11 Reorganization Personal bankruptcy; my September 20, 2017 blog post is pasted below. And I didn’t need a crystal ball to forecast the Toys ‘R’ Us Chapter 7 Bankruptcy, either. Well, history repeated itself.

Once again, nothing much good occurred to open public company – in this case, Toys ‘R’ Us – after it was used in private by a private equity company and a real property trust. For history on the all-but-certain-to-happen demise of Toy ‘R’ Us, read my post from September 20, 2017 below.

Did competition in the toy industry drive Toys ‘R’ Us into Chapter 11 personal bankruptcy, or was the main culprit something else? Sure, toy-industry competition play the right part. But I think the primary culprit was another thing. And that something else is private collateral firm ownership. Contrary to some people’s belief that Toys ‘R’ Us is a publicly-traded company, it is privately held by an investment group consisting of private equity firms. Notice the purchase participation of a real estate investment firm? Much of Toys ‘R’ Us’ acquisition was based not on the chain’s store functions and sales, but instead on the value of the company’s real estate.

What has occurred to Toys ‘R’ Us since then? Not just a complete great deal of good. Since Monday’s Chapter 11 (reorganization) bankruptcy, the company has been very careful with its selection of words to describe its actions. It has mentioned it “expects” to keep honoring warranties, return policies, and gift cards. Expects is not just a very comforting term for those on the other end of chapter 7, including the company’s 60,000 plus employees.

  • It forces one to look to the future
  • 3 Build Partnerships on solid foundations
  • Excesses in a single path will lead to an opposite extra in the other path
  • Stated rate: 4.5 percent, costs: zero, APR: 4.5 percent
  • Unbroken whois background
  • Have more than $2,100 of unearned income

And about those employees, they have previously been given the center finger by Toys ‘R’ Us’ private equity owners. Heck, 24 months ago, 67 NJ based Toys ‘R’ Us employees, skilled employees who worked well primarily in the company’s accounting division, were fired and replaced by imported workers from India using H-1B Visas. To increase the indignity to be fired, the New Jersey based Toys ‘R’ Us accountants were forced to train their Indian replacements before being shown the entranceway. Find out about this crass stick-it-to-loyal-employees move in this NY Times article.

And I concur with experts who have deep concerns about the near-future viability of Toys ‘R’ Us. 5 billion in acquisition-related personal debt. A lot of this debt’s responsibility was due payable this year, which likely helped brought on the Chapter 11 bankruptcy filing. Then, of course, there are the hyper-online and brick and mortar competition in the toy industry. With that combination of factors, I just don’t see Toys ‘R’ us steer clear of a future Chapter 7 liquidation bankruptcy.

Toy manufactures seem to concur, too. 1 billion in financing for pre-payment of toy orders. And with the forthcoming holidays, this prepayment demand debt is only going to get worse. Is the Toys ‘R’ Us situation unique? Nope. A similar situation happened to the previous SAN FRANCISCO BAY AREA structured clothing string Mervyn’s. Mervyn’s was used private when it was acquired by a group of private investment firms including Sun Capital Partners, Cerberus Capital Management, and real estate investment company Lubert-Adler Management. But you see, the investment group didn’t purchase Mervyn’s predicated on the company’s store procedures and sales, but instead for the worthiness of Mervyn’s real estate stock portfolio. Yep, for the worthiness of the Mervyn’s structures.