Toys R Us sale of Asian operation threatened by lenders’ disagreement

Published on: 28th August 2018

Dispute centres on future use of Toys’ name for Asia stores.

The sale of Toys R Us’s last and most valuable remaining asset, its Asian operation, has become embroiled in a fight between two groups of hedge funds over the future use of the brand by stores in the region.

One group of funds, including Cerberus Capital Management and Cyrus Capital Partners, owns notes issued by the Asian stores and would be the lead bidder for the shops. Another group, which includes Solus Alternative Asset Management and affiliates of Oaktree Capital Management, claims control over the rights to the Toys R Us name, because it was collateral on loans the funds had made to the company.

The second group, known as the B-4 lenders, believes the Asian stores aren’t paying enough for the use of the brand and has reserved its right to sue whoever wins the auction for the shops, according to court documents filed last Thursday. The filing sought to rewrite the auction rules and argued that any bidders in the sale needs to negotiate with them over how much the Asian business will pay to call itself Toys R Us. The B-4 lenders used the technical language of bankruptcy law to issue a veiled warning to any bidders who try to top the $760 million opening offer made by the Cerberus group, which is known as the Taj lenders: “Bidders, therefore, will have to understand the contractual terms and causes of action in deciding how much to bid and whether to engage in direct discussions with the B-4 lenders.”

Taj attorney Samuel Lovett said the group would continue to press forward with its plans for the Asia business. “The B-4 lenders’ threats are not new and have no merit. The Taj noteholders are focused on reorganizing the Asian operations as a going concern.” The two sides are scheduled to appear in court on 30th August to agree the rules governing the auction.

The Taj lenders would make a so-called ‘credit bid’ by using their senior secured notes in the Asia business rather than cash. Should no higher offers come in, they would automatically win ownership of the unit during an auction next month in New York, according to court documents. Noteholders eligible to participate include York Capital Management Global Advisors LLC, Barclays Bank Plc and Cerberus Capital Management LP, related court papers show.

By naming the lender group as the so-called stalking horse bidder, Toys R Us is said to be attempting to set the ground floor for the auction.


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