Toys R Us files for bankruptcy

Getty/Bennett Raglin

The toy retailer Toys R Us filed for Chapter 11 bankruptcy protection on Monday.

The retailer made the move as part of an effort to pay down $5 billion in debt it owes as a result of a leveraged buyout in 2005, according to an earlier report from The Wall Street Journal.

The chain’s trio of owners — the private-equity firms Kohlberg Kravis Roberts and Bain Capital Partners and the real-estate investment trust Vornado Realty Trust — bought the company in a deal worth $6.6 billion, taking it private.

Chapter 11 protection allows the company to restructure $400 million in debt due in 2018, another $1.7 billion due in 2019, and then renegotiate the rest, according to CNBC.

The debt crisis comes at a critical time for the toy seller. Toys R Us last year made 40% of its sales in the fourth quarter, thanks to holiday shopping. Vendors are feeling increasingly anxious about the chain’s ability to pay down its debts, according to the reports, which could lead to a shortage of toys to stock its shelves and further exacerbate the issue.

Toys R Us has also struggled as it increasingly competes with online retailers in its two main businesses: baby goods and toys. The company said in a statement that its operations outside the US and Canada — including 255 licensed stores and joint-venture partnership in Asia — are not part of the bankruptcy filing.