Toys R Us fund to pay laid-off workers

Thousands of Toys R Us workers who lost their jobs earlier this year may soon be receiving severance payments, setting a new precedent for private-equitybacked companies that file for bankruptcy.

Bain Capital and Kohlberg Kravis Roberts — two of the three firms that bought Toys R Us in a 2005 leveraged buyout and loaded it with billions of dollars in debt before liquidating the chain in June — are setting aside millions of dollars in a fund to be distributed to retail workers, according to a person involved in the negotiations who spoke on the condition of anonymity. A third owner, Vornado Realty Trust, is not contributing to the fund, that person said.

Representatives for Bain Capital and KKR declined to comment on the fund or its size. Vornado didn’t respond to requests for comment. The

Wall Street Journal reported Friday that they had set aside $20 million.

The workers are owed $75 million in severance pay, according to worker advocacy group Rise Up Retail. Prior to the bankruptcy, Toys R Us had guaranteed its workers two weeks of severance for their first year of service, and one week of pay for every two years on the job after that.

“This win at Toys R Us is part of a bigger movement of workers and families fighting back to hold Wall Street accountable for the investments that they make,” said Carrie Gleason, campaign manager for Rise Up Retail. “Bain and KKR made an investment that resulted in a lot of harm for families and communities, and the responsible thing to do is step up and pay workers what they are owed.”

It’s too early to tell, she said, how — or when — the funds would be distributed among workers.

The group, she added, is pushing for state and federal legislation that would require bankrupt companies to make severance payments. Toys R Us workers have also been meeting with lawmakers to push for new regulations on leveraged buyouts, as well as windfall taxes that would prevent private-equity firms from loading companies with debt and profiting from their demise.

The workers’ fund could have far-sweeping affects, particularly in the retail industry where leveraged buyouts — and subsequent bankruptcies — have grown increasingly commonplace. Toys R Us is one of dozens of private equity-backed retailers to file for bankruptcy since last year. Others that have filed for bankruptcy citing heavy debt loads include Nine West, Claire’s, Gymboree, True Religion and Payless Shoe Source.

Toys R Us filed for bankruptcy last year, citing $7.9 billion in debt against $6.6 billion in assets, and announced in March that it would close all 800 of its U.S. stores.

Toys R Us awarded executives $8 million in bonuses a week before it filed for bankruptcy.

“While we’re happy about this development, we believe the fund should be bigger because we’re talking about 33,000 workers,” said Madelyn Garcia, 50, who worked for Toys R Us for 30 years, most recently as a store manager in Boynton Beach, Fla.