Lenders cancel plan to auction intellectual property, seek reorganization instead.
In a bankruptcy court filing on Monday, Bloomberg reports that the lending group that has managed the liquidation of former retail giant Toys “R” Us has canceled their request to liquidate the chain’s intellectual property. Instead, the lenders seek to reorganize company assets into a new company, maintain their current license agreements, and potentially revive the brand as a new retail outlet.
The documents filed suggest a lack of suitable interest in acquiring the brand’s intellectual property has caused the lenders to seek restructuring the brand into a new business instead.
“Maintaining the brands under a new independent U.S. business is the best option for the Toys “R” Us estate and for other indirect and direct stakeholders,” asserts the court filing, going on to note that potential auction bids from outside investors “were not reasonably likely to to yield a superior alternative.”
Back in March, the New York Times reported that that Toys “R” Us was closing all of their stores. The chain had filed for bankruptcy protection last September, and, after a disappointing performance during the holiday season, elected to close and sell off its assets. The toy industry has suffered a steady decline since the advent of the smartphone, as members of the sector have found themselves unable to successfully compete for the attention of children. Additionally, the company’s outdated retail store business model had steadily lost business to online toy sales, which had seen 55 percent growth over the previous two years, and also faced heavy competition from Wal-Mart that had already eroded the profit margin to almost nothing.
These issues proved insurmountable after Toys “R” Us was laden with increased debt during its leveraged buyout by real estate firm Vornado Realty Trust and private equity firms Kohlberg, Kravis, & Roberts and Bain Capital in 2005. Forbes reported during the initial Toys “R” Us bankruptcy filing that the company took on $5.3 billion in increased debt during the buyout, elevating the company’s debt load from $0.9 billion to $6.2 billion.
In conjunction with the bankruptcy filing, PRNewswire reported that Geoffrey, LLC, the subsidiary that holds the intellectual property rights for the brand, would be acquired by an investment group led by the current secured lenders. USA Today reports that the new group plans to retain the corporate brand name and its intellectual properties, including Geoffrey the Giraffe, and reorganize the company into a wholesale venture called Geoffrey’s Toy Box. The Toys “R” Us headquarters in Wayne, Indiana continues to operate, and Geoffrey’s Toy Box opened an exhibit booth at the North Dallas Toy Show on Tuesday.
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