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Just as stores are starting to unpack Christmas signs, reports are that Toys 'R' Us is considering bankruptcy.
Toys "R" Us has $400 million in loans coming due in 2018, and Christmas sales will not solve the problem. Weighed down by about $5 billion in debt, the retailer has hired Kirkland & Ellis to help review its legal options: restructure or file for bankruptcy.
The economic signs have been staring down everyone in the retail industry for some time. Brick-and-mortar businesses are in deep trouble, and corporate counsel have to dig deeper for solutions.
Good News for Kirkland
As many companies' fortunes have fallen recently, Kirkland & Ellis has risen. Ranked as the top firm in Global Restructuring Review's inaugural rankings, the law firm out-paced 29 other world leaders in restructuring work.
"Kirkland had a busy year within the research period... with 25 active cross-border restructuring and insolvency cases identified," the firm reported.
Toys "R" Us tapped the firm to help weigh options, from bankruptcy to raising financing. The company previously said it was working with an investment bank to address the problem.
"As we previously discussed on our first quarter earnings call, Toys 'R' Us is evaluating a range of alternatives to address our 2018 debt maturities, which may include the possibility of obtaining additional financing," it said.
Bad News for Retailers
The possible bankruptcy reports have not been good, as the company's stock took a hit with the latest news. Toy makers -- that distribute through Toys "R" Us -- lost stock value, too.
CNBC first reported that Toys "R" us had hired Kirkland & Ellis. The firm has not confirmed because the company had not announced it.
Reuters, however, said that a large portion of the retailer's debt is secured by real estate, which could help with financing options. Fitch, a ratings agency, said real estate valuations have remained the same or improved for Toys "R" Us.
Meanwhile, more than a dozen other retailers have filed for bankruptcy this year. The Gymboree Corp., a children's clothier, and teen apparel company Rule 21, Inc. filed as consumers moved to buying from competitors online.