Toys `R' Us Offers Pricing on $500 Million Term Loan, Plans to Issue Bonds

Toys “R” Us Inc., the world’s biggest toy retailer, is proposing to pay a higher interest rate for a $500 million term loan it’s seeking to refinance bank debt and delay maturities.

The company proposed an interest rate of 4.5 percentage points more than the London interbank offered rate on the six- year loan, with a 1.5 percent Libor floor, according to a person familiar with the negotiations. That’s as much as 1.75 percentage points more than interest rates on existing debt, according to data compiled by Bloomberg.

Toys “R” Us also plans to begin marketing $500 million in bonds on Aug. 16 as part of an effort to reduce borrowings, said the person, who declined to be identified because the terms are private. The Wayne, New Jersey-based company joins more than a dozen issuers this week in seeking bonds and loans to refinance bank debt, including Blackstone Group LP-owned Pinnacle Foods Group Inc. and First Data Corp., taken private by KKR & Co. in 2007, amid rising investor demand and falling default rates.

Kathleen Waugh, a Toys “R” Us spokeswoman, declined to comment. The new financing will be used to repay all obligations under the company’s existing $800 million secured term loan facility and its existing $181 million senior unsecured credit facility, the company said in an Aug. 11 statement.

The company sold $1.68 billion of notes since November and filed in May to raise as much as $800 million in an initial public offering to refinance debt, Bloomberg data show.

S&P Ratings

Bank of America Corp., JPMorgan Chase & Co., Goldman Sachs Group Inc. are leading the loan deal and Wells Fargo, Credit Suisse Group AG, Citigroup Inc., and Deutsche Bank AG are co- managers, the person familiar with the matter said.

Toys “R” Us is proposing to sell the loan at 98.5 cents on the dollar, the person said, reducing proceeds for the company and boosting the yield for investors.

Standard & Poor’s said today that it rated the secured term loan and secured notes BB-, three levels below investment grade. The ratings company said Toys “R” Us’ corporate credit grade remains B, two additional steps lower, and may be upgraded after the planned IPO.

KKR, Bain Capital LLC and Vornado Realty Trust acquired the toy retailer in 2005 for $7.5 billion.

The company’s term loan due July 2012 with $798 million outstanding has an interest rate 4.25 percentage points more than Libor, the rate banks charge to lend to each other, according to Bloomberg data. Toys “R” Us owes $180 million on the credit facility due January 2013, which has a 5 percentage point margin over the lending benchmark, Bloomberg data show.

Default rates for junk-rated U.S. issuers decreased to 5.4 percent in July from 6.4 percent the month before, Moody’s Investors Service said in an Aug. 5 report. Moody’s forecasted a drop to 2.7 percent by yearend and to 2.1 percent by August 2011, down from 12.7 percent a year ago.

To contact the reporter on this story: Emre Peker in New York at epeker2@bloomberg.net; Krista Giovacco in New York at kgiovacco1@bloomberg.net.

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