Toys“R”Us Bankruptcy Proceedings Update

The U.S. Bankruptcy Court approves negotiated carve out for trade creditors and sale of its Canadian operations.

April 26, 2018 | The U.S. Bankruptcy Court approves negotiated carve out for trade creditors and sale of its Canadian operations. Members can access key Toys“R”Us bankruptcy documents on Prime Clerk’s website.

Court Approves Negotiated Carve Out for Trade Creditors [Docket No. 2853]

On April 24, the U.S. Bankruptcy Court approved a proposed order negotiated by the Official Unsecured Creditors Committee (UCC), a vendor group consisting of several trade creditors working with the interest of all trade creditors in mind, the DIP lenders, and Toys“R”Us that carved out a minimum of $156 million (with the potential for this figure to increase slightly) to pay approximately $800 million of administrative claims of trade creditors, critical vendors not paid in accordance with the terms of their critical vendor agreements, and 503(b)(9) claims from trade creditors. The carve out will not be used to pay claims held by parties other than trade creditors, such as landlords and professionals to the bankruptcy estate, and will be funded from proceeds of the DIP financing collateral (i.e. inventory, etc.).

Of critical importance, the parties agreed – and the bankruptcy court ordered -- that there would be no release granted to the so-called “b4” DIP lenders. All of the parties reserved their rights, including claims that trade creditors might have against the “b4” DIP lenders (which, if pursued, could result in an increased payout to trade creditors). Further negotiations are expected. A fee examiner also was appointed (a representative from FTI Consulting, financial advisor to the UCC) to review the fees of all professionals.

Court Approves Sale of Toys”R”Us Canadian Operations [Docket No. 2852]:

On April 24, the U.S. Bankruptcy Court also approved the sale of the Toys”R”Us Canadian operations to Fairfax Financial Holdings Ltd., a publicly owned financial holding company based in Toronto, Canada for $300 million. Through its subsidiaries, Fairfax is engaged in property and casualty insurance, reinsurance, and investment management. The sale of Toys“R”Us’ Canadian operations is made free and clear of all liens, claims, and encumbrances. The Canadian sale still requires approval from the Canadian court, which is scheduled to be heard on April 27. The proceeds from the purchase price will be used to pay bankruptcy claims and expenses. Subject to approval by the Canadian court , it is expected that the Canadian DIP Facility will be repaid in full at closing (expected to take place on or before May 31) and that all remaining obligations of Toys“R”Us Canada (including pre-filing claims held by creditors, including trade vendors) will be unaffected and will be satisfied in full after the closing of the transaction.