Toys R Us in Danger of Default

Sadie Keljikian, Express Trade Capital

It’s been a wild ride for Toys R Us and yet again, it looks like there may be a tragic end in sight.

Toys R Us filed for Chapter 11 in September in hopes of restructuring its debt and rebuilding. However, developments since then have been less than promising. Following a disappointing holiday season, Toys R Us announced that it would close 175 of its US locations, 20% of its total retail presence in the US.

Despite efforts to trim the fat and manage the retailer’s mounting debt, rumors are circulating that Toys R Us may breach a covenant in debtor-in-possession financing facilitated by J.P. Morgan Chase prior to the Chapter 11 filing due to insufficient funds. If Toys R Us is unable to pay off the $3.1 billion in financing, the lenders involved may choose to force the retailer into liquidation.

Although Toys R Us officials have dismissed these concerns as speculation, it seems highly unlikely that the toy retailer’s troubles are over.

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