Toys R Us lenders will make an opening bid of $760m for the bankrupt retailer’s Asia operations, far less than the $1b offers the company touted just a few months ago.
As reported by Bloomberg, and according to court documents filed on Saturday, the lenders would make a so-called ‘credit bid’ by using their senior secured notes in the Asia business rather than cash, and win ownership of the unit during an auction next month in New York. Noteholders eligible to participate include York Capital Management Global Advisors, Barclays Bank and Cerberus Capital Management, related court papers show.
Before an auction is scheduled, Toys R Us wants a US federal judge to strip the company’s minority partner in Asia, Fung Retailing, of its right-of-first-refusal purchase option as well as forcing Fung to agree to sell its 15% stake in the joint venture.
Toys R Us’ 12% first-lien bonds that mature in 2021 fell more than 5 cents to 70.5 cents on the dollar on Monday, the biggest drop since they were issued in 2016, according to Trace bond price data.
In April, a lawyer for Toys R Us told the judge overseeing the company’s bankruptcy that it had multiple bids worth more than $1b for the Asia business. Toys R Us owns nearly 85% of the venture and Fung owns the rest.
Since then, Toys R Us has been unable to get one of the potential buyers to commit, according to court documents. The company blamed interference by Fung.
By naming the lender group as the so-called stalking horse bidder, Toys R Us would set the ground floor for the proposed September auction.
After filing for bankruptcy last year, Toys R Us struggled to reorganise its complicated debt structure and save the company’s US operations. When that effort failed earlier this year, Toys R Us began liquidating its worldwide operations, selling its Canadian and central European businesses and shutting down is US stores.
The liquidation sales may not bring in enough money to even cover the cost of the bankruptcy, with suppliers, lawyers and former employees all seeking payment for services they provided after Toys sought court protection in September.
On Sunday, the company filed an outline of how it plans to split among creditors the money it has raised from selling assets. But the document left out any estimates of how much creditors are likely to recover.