Bankruptcy likely for Toys R Us

Toys R Us, which has struggled to lift its fortunes since a buyout loaded the retailer with debt more than a decade ago, is preparing a bankruptcy filing as soon as Tuesday, according to people familiar with the situation.

The Chapter 11 reorganization of America’s largest toy chain would deal another blow to a brickand-mortar industry that’s already reeling from store closures, sluggish mall traffic and the threat of Amazon.com.

Filing for bankruptcy would allow Toys R Us to restructure $400 million in debt that comes due next year, letting the chain rebuild as a leaner organization.

The retailer has hired a claims agent, which typically helps with administering such a process, people with knowledge of the situation said. And its vendors have been curtailing shipments amid concern that Toys R Us might not be able to pay its bills.

“With speculation of a bankruptcy mounting, shares of Toys R Us vendors tumbled Monday. Mattel, the maker of Barbie and Fisher-Price, fell 6.2 percent, its worst decline in seven weeks. Shares of Hasbro, the company behind Monopoly, Nerf and Transformers, dropped 1.7 percent. A representative for Toys R Us declined to comment.

A debtor-in-possession loan could be as much as $3 billion, a person with knowledge of the discussions said.

Much of the debt is the legacy of a $7.5 billion leveraged buyout more than a decade ago. In 2005, Bain Capital, KKR & Co. and Vornado Realty Trust loaded Toys R Us up with debt to take it private. Since then, the Wayne, N.J.based chain has struggled to dig itself out.

Some years, the company had to spend as much as half a billion dollars on cash interest expenses alone, according to Bloomberg Intelligence analyst Noel Hebert.

That left Toys R Us with less cash to put toward store expansions, merchandising and — crucially — the growth of its online presence.