Who ruined Toys ‘R’ Us? Hedge funds and private equity play Blame Game

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Two of the three private equity sponsors that put Toys “R” Us in debt in a buyout 13 years ago are getting it right, sort of, a little bit.



KKR

and Bain Capital, which together with



Vornado Real Estate Trust

bought the company for $ 7.5 billion in 2005, said Tuesday it had established a $ 20 million aid fund. KKR and Bain Capital each pledged $ 10 million in the fund, to “allocate and distribute funds to certain former Toys” R “Us employees at the U.S. company who lost their jobs as a result of severe disruption in the business. retail sector and business liquidation, ”the companies said in A press release. None of the money comes from KKR or Bain customers.

Businesses were also surprised at how serious things were, they said in the statement. Toys “R” Us filed for bankruptcy in September 2017, with high hopes. But bankruptcy is difficult for retailers, especially before the critical holiday season. It has skyrocketed and earlier this year went into liquidation, closing stores and laying off workers, without severance pay. Some 33,000 Toys “R” Us workers have lost their jobs, “as a direct result of the greed on Wall Street,” according to Rise Up Retail, a worker advocacy campaign.

“After being a part of the community and supporting Toys ‘R’ Us for 12 years, and advocating for a very different outcome than what has happened, we are establishing this fund in response to an extraordinary set of circumstances for our two companies. KKR and Bain said in their statement. “The confluence of the retail disruption, the pressure from the company’s secured creditors to liquidate the company’s operations in the United States and the fact that we’ve never experienced anything like this in history of either company, led us to try to find a way to provide some financial relief to former employees.

“This is a unique set of circumstances which called for a unique solution, and we hope others will consider joining and contributing to the Fund,” they wrote. The faint, forced cough is almost audible: Private equity third sponsor Vornado is conspicuously absent from the statement. Vornadao did not respond to a request for comment.

“It was a fantastic and historic victory for us,” said Sarah Woodhams, a former Toys “R” Us employee who now campaigns with Rise Up Retail. “This is the first time that people have received a response from these companies and the establishment of this fund is historic in itself. We’re just trying to make it grow.

Read more: The toys were us: the perils of debt

The companies appear to be hoping this fund will be exculpatory in the Toys “R” Us absolution standoff. Sponsors have blamed creditors, accusing them of trying to extract salvage value from remaining assets. Creditors, meanwhile, blamed sponsors, accusing them of overburdening a good company with way too much debt in 2005, then not investing and positioning themselves properly, then letting it burn money. too long before she dropped her off, so that by the time she went bankrupt, she had little left to collect. That way, everyone sees themselves as just doing their respective jobs, blaming it on other parties whose structurally bad incentives drove them to do bad things.

This battle does not appear to show any sign of abating. A creditor, Solus Alternative Asset Management, said in a statement:

“Given their responsibility in liquidating Toys” R “Us after putting the company into debt with crushing debt, as well as their decision to end the employees’ initial severance plan, we welcome the help of the sponsors of the private equity to former workers. “

Lenders, Solus noted, “have already made substantial contributions to employees, including $ 35 million to compensate affected workers and an additional $ 180 million to pay administrative claims, including severance pay.”

In addition to these important contributions, which far exceed those of Bain and KKR, the lenders are now focused on using the brand in a way that would create jobs and exploring additional opportunities to support alumni. employees. ”

A representative for another creditor, Angelo Gordon, declined to comment.

Both private equity firms are responding to public outcry, but also, more specifically, because former workers have started targeting their livelihoods: Laid-off Toys “R” Us employees lobbied New Jersey State The Investment Council – the company’s home state – to withdraw its money from Solus, one of the creditors they claim unfairly forced Toys “R” Us into liquidation. Some have been picketing ahead of the group’s investment meeting in Trenton this fall. Former employees have also lobbied pension funds in San Francisco and North Carolina.

Although $ 20 million sounds generous and is far above $ 0, it is still a reduction from the $ 70 million in severance that Get up to detail said the workers were promised.

All contributions to the new fund will go directly to eligible former Toys “R” Us employees. Beyond the money and the initial contribution, KKR and Bain will have nothing to do with the fund, its directors say. independents, Kenneth Feinberg and Camille Biros.

The Trustees are “leading experts in the design and administration of unique programs such as the 9/11 Fund, BP Oil Spill Fund, GM Ignition Switch Compensation Fund and funds created after the Boston Marathon attacks and the Pulse nightclub massacre in Orlando ”.

“We have designed a transparent, straightforward and straightforward process which should bring financial relief to eligible former employees,” Biros said in the press release. “Next, we want to hear from former employees affected by the unexpected liquidation.”

The claims process is expected to begin Dec. 15, with distributions to begin “shortly thereafter,” through April 30, 2019, the statement said.

Former employees are eligible for the money based on factors ranging from hours worked to seniority to annual income (over $ 5,000, but less than $ 110,000).

Someone identifying himself as Mikey Fox has started a petition demanding severance pay for the employees of Toys “R” Us, who collected 11,000 signatures no later than this week. Fox wrote that he learned from media reports that the Toys “R” Us store where he worked, in Eugene, Ore., Was closing.

“I’ve heard that the owners of Toys R Us are Wall Street companies that don’t care about running a toy business – they just want a quick profit,” he wrote, citing the salary of $ 3.7 million base for the company’s chief executive, David. Brandon, and other retention bonuses for senior executives as he and other workers lost their jobs. “This corporate greed is hurting me and my family. And this is unacceptable. We are losing our jobs and our livelihoods while these cadres have given themselves huge gains.

According to the press release, some former employees are happy with the help:

“The creation of this fund by KKR and Bain Capital will provide real support to the thousands of dedicated Toys” R “Us employees who have lost their jobs,” said Tracy Forbes, who worked at Toys “R” Us for 31 years. years in his Chandler, Arizona. ., shop. “We hope that other companies will follow their example and contribute.”

Write to Mary Childs at [email protected]



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