Toys R Us creditors throw retailer a lifeline

At a meeting in London earlier today, 98% of Toys R Us’ creditors approved its proposed company voluntary arrangement (CVA), offering it an opportunity to turn its fortunes around.

The restructuring plan, involving the closure of at least 26 unprofitable stores and around 500 job losses, is aimed at relieving Toys R Us of some of its unmanageable costs. 

The Pension Protection Fund (PPF) said earlier this week that it intended to block the CVA unless a compromise could be reached that would sufficiently safeguard Toys R Us’ retirement scheme.

However, the retailer and the regulator clinched a deal at the eleventh hour.

During today’s discussions, Toys R Us agreed to pay a package worth £9.8m into its pension scheme, composed of £3.8m to be paid in 2018 and a further £6m promised over 2019 and 2020. 

This exceeds the £9m contribution originally sought by the regulator.

According to the PPF, the retailer has undertaken to seek additional support from its US parent company for the new plan for the pension scheme.

Back from the brink

Today’s outcome has temporarily pushed Toys R Us back from the brink of collapse.

Prior to the vote, sources close to the retailer said that if the CVA failed, Toys R Us in the UK would likely to follow its US parent company into administration. This would have put its 84 permanent stores, 20 pop-ups and 3,200 jobs at risk. 

But despite its newly secured survival plan, the toil is far from over for the ailing firm, which has been loss-making for seven out of the past eight years. 

As Steve Knights, the managing director of Toys R Us UK admitted, the warehouse-style stores that it opened “are too big and expensive to run in the current retail environment”.

Commenting on today’s vote, Knights said: “We are pleased to have secured the support of our creditors and will be working closely with them in the months ahead. The vote in favour of the CVA represents strong support for our business plan and provides us with the platform we need to transform our business so that we can better serve our customers today and long into the future.

“All of our stores across the UK will remain open for business as normal until Spring 2018. Customers can continue to shop online and there will be no changes to our returns policies or gift cards across this period.”

MP concern

Toys R Us’ precarious situation came under the radar of MPs this week. 

Frank Field, chair of Parliament’s Work and Pensions Committee, said the stewardship of the company has been “disgraceful”. 

He raised concerns over the writing off of nearly £600m in loans to a subsidiary firm based in the British Virgin Islands, as well as speculation around executive pay hikes.