The New York Post reports that talks are in very early stages and they have not presented terms yet. The 1,585-store chain lost $198m in the three months ended May 3 — and is carrying a debt load of nearly $5b.
The Wayne, NJ, chain is in no danger of running out of cash, as it still had nearly $1b in borrowing capacity as of May 31st. The talks were started at this time to take advantage of the strong credit markets, sources said, and to head off any potential problems down the road — particularly if the chain had a poor Christmas. Some of the more junior Toys debt is trading at about 85 cents on the dollar, indicating there is some financial stress. The most pressing next principal payment is $1b, but it is not due until the fall of 2016.
By refinancing now before the holiday season, Toys would likely have to pay a higher interest rate and pledge more of its real estate, but be able to erase its 2016, and perhaps 2017, debt payment.
If it waits, Toys could, with a good holiday season, find it less expensive to refinance. However, if sales fall, refinancing at all may be a problem.