Toys ‘R’ Us stores in Tennessee and across the country will remain open even though the company is filing for bankruptcy. The struggling company has filed under Chapter 11, a type of bankruptcy designed to help a business handle and improve its financial situation without liquidating assets or shutting down.
The company has had financial difficulties since a leveraged buyout in 2005. A leveraged buyout combines debt and equity with the intention of using operating revenue to pay off the debt. For Toys ‘R’ Us that debt was $5.3 million. Since then, the company has not generated enough operating revenue to handle the debt effectively. Stiff competition in toy sales has come from online retailers like Amazon and big box stores like Walmart and Target.
Unable to afford to be competitive while trying to pay off debt, Toys ‘R” Us opted for debt reorganization bankruptcy. Under Chapter 11, a business is given flexible options for paying what it owes while keeping the business running. Lenders and investors have already committed to more than $3 billion in financing. For customers in the U.S. and Canada, things will not seem any different for the time being. Stores in other countries are not affected by the bankruptcy. The company hopes to come out of Chapter 11 in a stronger financial position than it has been in for some time.
Chapter 11 is similar to Chapter 13 bankruptcy in a way. These restructuring bankruptcies are suitable for people or businesses who do not qualify for Chapter 7 bankruptcy or who wish to pay off debt under a restructured payment plan. Unlike Chapter 7, which is for both businesses and individuals, liquidation of assets is not required under Chapters 11 or 13.