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Toys R Us files for bankruptcy

Toys R Us has filed for Chapter 11 bankruptcy protection.
Shoppers head into a Toys R Us store

Toys R Us, facing imminent deadlines to pay off hundreds of millions in debt, said Monday that it has filed for Chapter 11 bankruptcy protection.

The move comes on the cusp of the all-important holiday season, a period in which many retailers earn nearly half of their annual revenue, and a time of year that is particularly lucrative for the giant toy seller.

The filing also strikes at the heart of one of the nation's most iconic retailers, a household name for more than a generation. Toys R Us pioneered big-box toy retailing generations ago, a national chain that displaced many smaller, neighborhood toy stores.

The company emphasized that its roughly 1,600 locations will remain open and it will continue to work with suppliers to make sure its shelves remain well-stocked with games, gadgets, and other toys.

The company made the filing in the U.S. Bankruptcy Court for the Eastern District in Richmond, Va. Its Canadian subsidiary plans to make a similar petition in Ontario Superior Court.

“Today marks the dawn of a new era at Toys“R”Us where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way,” Dave Brandon, the company's CEO said in a statement.

Noting that the restructuring will enable it to to deal more effectively with its $5 billion in long-term debt, Brandon added that the bankruptcy filing "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.''

The toy giant had been working with attorneys at the firm Kirkland and Ellis to explore options to deal most immediately with $400 million in debt due by the end of this year.

The bankruptcy filing may make some shoppers reluctant to make Toys R Us a destination during the upcoming holidays, and there may be gaps on some shelves if skittish suppliers decide to hold back on some deliveries. But bankruptcy could also give the toy store chain some relief, enabling it to cancel leases and abandon poorly performing locations.

Toys R Us becomes just the latest retailer to seek bankruptcy protection at a time when traditional stores are struggling to draw foot traffic and compete with the rise of Amazon and other online sellers. Aerosoles, Payless ShoeSource, Wet Seal, and Gymboree are among the dozens of others traditional brick and mortar chains who have also filed.

Toys R Us has acknowledged that its digital experience was lagging some of its peers, and it revamped its website this past summer.

Toys R Us has carried a heavy debt load since it became a private company in 2005. Its private equity investors, KKR, Bain Capital, and Vornado Realty Trust, initially planned to earn back their investment with a public stock offering, but that plan fell apart three years later when the Great Recession hit.

Brandon came on board as chief executive in 2015 to steer a turnaround that aimed to prepare the company for either another attempt to go public or a sale. The company, which acknowledged lagging behind its peers when it come to its digital experience, also revamped its website this summer. But success has been elusive. Toys R Us now trails Walmart, the biggest toy seller in the U.S. And shoppers have a range of online options when browsing for gadgets and games.

The toy store chain's long-term debt was $5 billion as of April 29. It had $701 million in liquidity, which included $400 million in committed lines of credit.

To facilitate its restructuring, a group led by JP Morgan, along with other lenders will give Toys R Us more than $3 billion in financing.

"Toys R Us is committed to working with its vendors to help ensure that inventory levels are maintained and products continue to be delivered in a timely fashion,'' the company said.

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