American toy maker Toys 'R' Us has filed for bankruptcy protection in the US and Canada as it attempts to restructure its debts with the help of various lenders.
Once the dominant player in the US toy market, the company has struggled with $5bn of long term debt as it faced rising competition from rivals such as Amazon, Walmart and Target.
As a result, Toys'R'Us said it intends to use court-supervised proceedings to restructure its outstanding debt and establish a sustainable capital structure that would enable it to invest in long-term growth and fuel its aspirations.
To help with finance, the company had reported receipt of commitment for over $3bn in new financing from various lenders such as a JPMorgan-led bank syndicate and certain of the company's existing lenders, which, subject to approval, was expected to immediately improve the company's financial health and support its ongoing operations during the court-supervised process.
The group also said it was looking to online sales in order to secure its future with recently launched web stores for its products.
Operations in Australia and Europe and a joint venture in Asia were not part of the bankruptcy proceedings.
Dave Brandon, the chairman and chief executive of Toys 'R' Us, outlined the company's objective to work with debt holders and other creditors to restructure with $5bn of long term debt in its balance sheet.
"Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business, continue to improve the customer experience in our physical stores and online, and strengthen our competitive position in an increasingly challenging and rapidly changing retail marketplace worldwide", said Brandon.
Rating agency S&P lowered its corporate credit rating to 'CCC-' from 'CCC+' on media reports that some vendors have pulled back on terms, although a major vendor publically stated there has been no change.
"Additionally, market data points to an increasing possibility that Toys could choose a broader restructuring to address its capital structure," S&P said, adding that it believed there was a growing likelihood of some form of an extensive restructuring.