CNBC and Wall Street Journal reports suggest that additional store closures may be required to satisfy lenders.
The Wall Street Journal has reported that Toys R Us plans to close an additional 200 locations and lay off what has been described as “a significant portion of its corporate staff.”
The retailer previously announced that around 180 stores would be closed in April, resulting in 4,500 workers losing their jobs. The 200 newly-reported planned closures would be in addition to the April closures, and would impact in-store workers in addition to corporate staff.
Meanwhile, CNBC has reported that Toys R Us is potentially at risk of breaching the covenant on one of its loans. The retailer secured a $3.1 billion loan from a group of lenders led by J.P. Morgan Chase prior to filing for bankruptcy protection. The report does, however, state that the retailer is currently in compliance with its loan terms, and has a number of options afforded to it before breaches the covenant. These options include getting financing elsewhere, so its cash balance does not breach the loan terms, or renegotiating the debt terms with its lenders.
If Toys R Us does breach the covenant, its lenders have the option to force it to immediately pay them back, which could in turn force the retailer into liquidation. CNBC’s sources stressed that no decisions have been made and the DIP lenders remain supportive of Toys R Us.
Before the lenders can make any further decision, they are said to be awaiting a business plan from Toys R Us, which would need to illustrate that the retailer is more likely to pay the lenders back by doing business than by liquidating and selling its assets. It has been suggested that this plan may include the notion of additional store closures referred to in the Wall Street Journal article.
A spokesperson for Toys R Us has reiterated that the retailer has not breached any of the covenants governing its bankruptcy financing, referring to the CNBC report as “full of speculation.” Attorneys for the lenders and creditors have repeatedly told the bankruptcy court that it is in everyone’s best interests that Toys R Us survives, while the fact that the retailer reportedly still has the support of its lenders makes liquidation unlikely at this stage.
