Angelo Gordon, HPS help finance in largest retail DIP loan

Toys R Us is requesting Chapter 11 loans that would eclipse the $2bn offered to Kmart 15 years ago.

Toys R Us has filed for bankruptcy in a Virginia federal court, where it is seeking permission to tap $3.13 billion in bankruptcy financing, on which distressed debt shops Angelo, Gordon & Co. and HPS Investment Partners, among others, are lenders.

The Wayne, New Jersey-based toy retailer has sought approval to access the debtor-in-possession financing package, consisting of multiple facilities.

Those include one for $2.3 billion, consisting of a $1.85 billion commitment from JPMorgan and other banks along with a $450 million of first-in, last-out financing from a syndicate of lenders. A separate $450 million term loan is also being offered to Toys R Us, courts papers showed, with an additional $375 million of internal financing to be accessed from nonbankrupt affiliates.  

Toys R Us will use the funds to refinance some of the company’s existing debt as well as bankroll the borrower’s working capital and pay expenses related to the Chapter 11 case.

Taken alone, the $2.3 billion commitment is the largest bankruptcy financing extended to a retailer, according to data from financial research firm The Deal, which keeps a database of such transactions. In retail, the Toys R Us DIP loan surpasses the $2 billion financing Kmart received in its Chapter 11 case. The largest bankruptcy financing of any kind was the $33.3 billion assembled to back General Motors in its bankruptcy in 2009.

On the $450 million FILO loan, Angelo Gordon is providing $126.72 million, while HPS is lending $18.13 million, court filings showed. Representatives for the lenders and the debtor declined to comment.

In addition, Franklin Mutual Advisors (at $139.62 million), Marathon Asset Management ($86.75 million), Solus Alternative Asset Management ($34.92 million), Roystone Capital Management ($26.28 million) and Redwood Capital Management ($17.58 million) are also lenders.

Redwood, a distressed debt investment firm, made the investments out of its drawdown fund, Redwood Drawdown Fund, bankruptcy court papers revealed. The fund raised at least $589.11 million for the vehicle, according to regulatory filings submitted with the US Securities and Exchange Commission.

Currently, Redwood is also raising its second fund, Redwood Drawdown Fund II, and has locked down $1.48 billion, the SEC documents revealed. Its vehicles charge up to a 2 percent management fee on the net asset value of each fund’s shares and performance fees of up to 20 percent, according to additional SEC documents.

Toys R Us, which was taken private in 2002 via a $6.6 billion leveraged buyout by KKR, Bain Capital and Vornado Realty Trust, listed $5.27 billion in liabilities in court papers. The debtor also sought court protection in Canada under the Companies’ Creditors Arrangement Act.

The company sought court protection because of a highly-levered capital structure – with annual cash debt servicing cost Toys R Us $400 million – as well as the costs of above-market leases and increasing competition from big-box retailers and online shopping.

A number of private equity-backed retailers have sought court protection recently, including Gymboree Corporation, which Bain acquired in 2010 for $1.8 billion, and Payless Shoes, which Golden Gate Capital and Blum Capital Partners acquired in $1.32 billion deal in 2012.