$20M fund set up to pay Toys R Us’ former employees

Thousands of former Toys R Us workers will receive severance payments from a new $20 million fund.

The move is considered rare among private-equitybacked companies that file for bankruptcy. Even so, the amount pledged is well below the $75 million that a worker-rights group says those who lost their jobs are owed.

Bain Capital and Kohlberg Kravis Roberts announced Tuesday that each had committed $10 million to a fund for former Toys R Us workers. Bain and Kohlberg Kravis Roberts are two of the three firms that bought Toys R Us in a 2005 leveraged buyout and loaded it up with billions of dollars in debt before liquidating the chain in June. One hundred percent of contributions to the fund will be paid directly to eligible employees. The fund is structured so that other “interested parties” can contribute. A third Toys R Us owner, Vornado Realty Trust, did not immediately respond to a request for comment on whether it would give to the fund.

“This is a valuable and important step designed to provide a degree of financial relief to eligible former employees of Toys R Us,” said Kenneth Feinberg, an expert on designing compensation funds and one of the fund’s independent administrators.

Exactly how the funds

● are distributed will be framed around company data including earnings and the number of hours worked, as well as input from former Toys R Us employees. A draft of the proposal suggests eligible employees must have worked for Toys R Us for at least a year, have made no more than $110,000 in annual income and have made no less than $5,000 in annual income.

The worker-rights group Rise Up Retail has argued that thousands of Toys R Us workers are owed $75 million in severance pay. Before filing for bankruptcy last year, 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. Rise Up Retail is also pushing for state and federal legislation that would require bankrupt companies to make severance payments.

Ann Marie Reinhart, a 29-year Toys R Us employee, called the fund “historic” and said it would set a precedent for how other private-equitybacked

companies that declare bankruptcy compensate their workers. Reinhart, 59, said she has not been able to find a job that gives her health insurance.

She and other workers, she said, would continue to put pressure on the hedge funds that own the company to protect former employees. Those hedge funds have held on to the Toys R Us and Babies R Us brand names, Web domains and other assets, and have even brought the iconic mascot Geoffrey the Giraffe back to work — a move that worker advocates have dismissed as a “PR stunt.”

The news of a severance fund has”rejuvenated me, particularly that we can achieve something like this,” Reinhart said. “It’s a win for us, and it’s a win for any other retail worker that this happens to in the future, because we see what’s happening with Sears and Kmart.”

Carrie Gleason, campaign manager for Rise Up Retail, said tens of thousands of workers would be eligible for compensation under the fund’s guidelines. She credited Toys R Us families with consistently advocating for their rights and “pushing back and saying ‘our

jobs matter, and our families deserve better.’ “

Bain, Kohlberg Kravis Roberts and Vornado have also come under political pressure to compensate former Toys R Us employees. In June, U.S. Sens. Cory Booker and Robert Menendez and U.S. Rep. Bill Pascrell, all Democrats from New Jersey, wrote to the firms urging for assistance for laidoff workers. That month, the lawmakers stood with Toys R Us employees and advocates outside the New Jersey-based retailer.

“This financial assistance fund will provide workers who lost their jobs through no fault of their own a better chance to provide for their families, stay in their homes, and rebuild their lives,” Booker, Menendez and Pascrell said in a statement.

Toys R Us cited $7.9 billion in debt against $6.6 billion in assets when it filed for bankruptcy in 2017. In March, the company announced it would close all 800 of its U.S. stores.

The beloved toy company was one of dozens of privateequity-backed retailers to file for bankruptcy amid significant changes to the industry. Citing heavy debt loads, retailers including

Nine West, Claire’s, Gymboree, True Religion and Payless Shoe Source also recently filed for bankruptcy.

There will be a two-week period for former workers and other interested parties to give feedback on the fund’s terms and conditions. Feinberg and Camille Biros, another compensation fund expert and the fund’s second independent administrator, will then outline a final protocol. The claims process is expected to begin Dec. 15. Money will be distributed shortly after, and will probably be completed on or about April 30, 2019. Neither Bain nor Kohlberg Kravis Roberts will have any role in distributing money or administering the fund.

In a statement, Bain and Kohlberg Kravis Roberts said a “unique set of circumstances … called for a unique solution.”

“The confluence of the disruption in retail, the push by the company’s secured creditors to liquidate the company’s U.S. operations, and the fact that we have never experienced something like this in the history of either firm, led us to try and find a way to provide some financial relief for former employees,” the firms said.