Toys “R” Us Inc. plans to close another 200 stores and lay off a significant portion of its corporate staff following a disappointing holiday sales season, the Wall Street Journal reported. The Wayne, N.J.-based retailer recently had announced plans to close about 180 stores, affecting approximately 4,500 workers. The latest wave of closings would cut nearly in half the number of U.S. stores it had before its bankruptcy filing. The company has also walked back from a promise to offer severance to all affected employees. Managers were recently instructed to tell hourly workers that “there are no severance benefits being provided for the store-closing process.” In January, store managers were instructed to tell employees that the company would provide severance to all affected employees, including hourly workers. Read more. (Subscription required.)
In related news, Toys “R” Us is at risk of breaching a covenant on one of its loans, intensifying concerns about its ability to emerge from bankruptcy protection, CNBC reported. The toy retailer secured a $3.1 billion loan from a group of lenders led by JPMorgan Chase prior to filing for bankruptcy protection. After a dismal holiday season, Toys “R” Us is now at risk of having too little cash to satisfy the terms of the loan. The retailer is currently in compliance with its loan terms, and has a number of options afforded to it before it does breach the covenant, the sources said. These options include getting financing elsewhere so its cash balance does not breach the loan terms, or renegotiating the debt terms with its lenders. If Toys “R” Us does breach the covenant, its DIP lenders have the option to force it to immediately pay them back, which could in turn force the retailer into liquidation. Read more.
Occupancy issues are at the heart of many significant retail cases, as detailed in the forthcoming ABI publication, Retail and office Bankruptcy: Landlord/Tenant Rights, available for pre-order at the ABI Store.
