Toys R Us workers’ severance rejected

The private equity owners of Toys R Us have shown a willingness to take unprecedented steps toward supporting the company’s former workers, but the lenders that financed its bankruptcy — and ultimate liquidation — are making no such promises.

Angelo Gordon & Co. LP and Solus Alternative Asset Management don’t plan to contribute any more cash to benefit Toys R Us employees who were left jobless when the biggest U.S. toy retail chain shut down, according to an attorneys’ letter dated Tuesday that was reviewed by Bloomberg. The letter came in response to two worker advocacy groups who asked the hedge funds last month “to take responsibility by ensuring that Toys “R” Us employees receive the money that they had been counting on.”

While they recognize the hardship for the workers, Angelo Gordon and Solus didn’t cause the company’s domestic collapse and shouldn’t be responsible for financial benefits for employees or other unsecured lenders, according to lawyers at Wachtell, Lipton, Rosen & Katz.

In court, the defunct chain’s 33,000 workers have been seeking the same treatment as creditors, who customarily are given high priority under the U.S. bankruptcy code because their services are considered crucial to winding down a company — a category known as administrative claims.

The two advocacy groups, which include the Center for Popular Democracy and the Private Equity Stakeholder Project, estimated that the workers should have received $75 million in severance under the company’s policy.