Toys “R” Us Inc.’s U.S. business is in the midst of a wind-down, but its Asian business may have hope for survival.
The toy retailer has received multiple bids of more than $1 billion for a majority stake in its Asian business, the company’s bankruptcy attorney said in court on Wednesday.
Interested bidders are looking to take an 85% stake in the Asian business. Bankruptcy lawyer Joshua Sussberg of Kirkland & Ellis updated the court on the status of the company’s Asian business during a hearing in which the Toys “R” Us won approval to borrow an additional $80 million under its bankruptcy loans to support its healthy overseas operations.
Judge Keith Phillips of the U.S. Bankruptcy Court in Richmond, Va., gave interim approval for a higher debtor-in-possession loan, with a hearing for final approval set for April 27.
The additional funds are needed to keep the toy retailer’s Central European and Asian units in business, lawyers for Toys ‘R’ Us and its creditors said at the hearing.
“The Asian businesses and the Central European businesses are very healthy and there is no reason they need to be dragged down by everywhere else in the world,” said Brian Hermann of Paul, Weiss, Rifkind, Wharton & Garrison LLP, who represents an ad hoc committee of noteholders.
Although Toys ‘R’ Us is currently conducting a sale process for the Asian businesses and has received indications of interest, it needs the additional financing to shore up vendors’ confidence in the company, Mr. Hermann said. “We can’t just rely on indications of interest…We want to show that there is liquidity and there is no reason to doubt Asia and Europe,” he said.
Some $40 million of the loan proceeds are earmarked for backstopping additional vendor shipments to Asia, said Kenneth Eckstein of Kramer Levin Naftalis & Frankel LLP, a lawyer representing the unsecured creditors committee. The rest of the financing will fund ongoing operations, he said.
Toys ‘R’ Us operates more than 700 stores in Japan, Australia, Europe, China and Southeast Asia, which generated more than $3 billion in estimated revenue and $192 million in estimated adjusted earnings before interest, taxes, depreciation and amortization in 2017, according to filings.
The company recently defaulted on its existing bankruptcy loan due to the liquidation of its businesses in the U.K. and Spain, but the company’s lenders waived the default, according to papers filed on Tuesday.
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