IT’S TOY STORY 11
Vendors halt shipments, prompt filing: sources
It wasn’t what Toys ‘R’ Us said, but what it didn’t say, that forced it into bankruptcy this week.
Last week, the struggling toy giant abruptly canceled appointments with manufacturers that had been scheduled for this week to view merchandise for the 2018 holiday season, sources told The Post.
The surprise cancellation came on the heels of Toys ‘R’ Us admitting on Sept. 6 that it had hired a restructuring law firm, Kirkland & Ellis, to help it with $400 million in debt that’s coming due in 2018 — a disclosure that had already spurred some vendors to halt shipments to stores.
“I don’t know that they planned to file this early,” said Richard Gottlieb, chief executive of Global Toy Experts. “But when it leaked out that they had hired these lawyers, I was told by sales people in Hong Kong that 60 percent of the manufacturers they knew had cut off shipments to Toys ‘R’ Us.”
Toys ‘R’ Us stayed tightlipped on its reasons for scrapping this week’s meetings, according to insiders — leading still more manufacturers to conclude that the retailer was in such dire straits that it might not be able to pay for its holiday inventory.
“For the appointments to be canceled it means they just don’t want to talk” — and had nothing reassuring to say about its finances, said the source.
Toys ‘R’ Us had previously disclosed in a regulatory filing in June that it’d hired Lazard to restructure its $5.2 billion debt load.
Those talks didn’t go well, forcing Toys ‘R’ Us into a Chapter 11 filing late Monday in order secure $3 bil- lion in debtor-in-possession financing to keep holiday toys flowing to shelves.
Goldman Sachs and JPMorgan, which both led the rescue package, were likewise among the victims in the bankruptcy, sources said.
Goldman Sachs owned a chunk of the debt coming due in 2018, according to two people familiar with the holding. It’s unclear how much the bank has held, but one Goldmanite insisted it was “of no significance.”
JPMorgan, meanwhile, had sold a form of insurance on Toys ‘R’ Us inventory receivables to vendors looking to hedge for a bankruptcy, two people said.
That insurance, in the form of put options, usually lasts about 18 months and recently carried a fee of 3 percent a month — a stiff premium that reflected how risky Toys ‘R’ Us had become, those sources said.
One person, however, said that the bank had hedged its exposure using credit default swaps, so it’s unlikely to suffer a loss.
Toys ‘R’ Us only put certain of its businesses in bankruptcy. Much of its more profitable European and Asian locations are not part of the filing, one source noted.
In fact, the retailer’s owners roughly a year ago started speaking to lenders in an effort to split the troubled US arm from its more profitable international business, a lender said.
“It seemed like an inevitability” that it was going to put the US arm in bankruptcy, the lender said.