Toys ‘R’ Us Said to Raise Rates on $1.3 Billion of LoansChristine Idzelis
Lenders to Toys “R” Us Inc. are demanding a higher interest rate than the retailer proposed paying them for $1.3 billion of loans that will buy it time to bolster a recovery after struggling during the fourth quarter last year.
The Wayne, New Jersey-based company will pay 8.75 percentage points more than the London interbank offered rate for a $1.025 billion, 5 1/2-year loan, compared with an initially offered range of 8 percentage points to 8.25 percentage points, according to a person with knowledge of the deal, who asked not to be identified without authorization to speak publicly. Libor will have 1 percent minimum.
Toys “R” Us, rated six levels below investment-grade by Moody’s Investors Service and Standard & Poor’s, is increasing the interest it will pay to push out debt maturities ahead of its crucial holiday season. The proposed margin is more than double than the 4.15 percentage-point average for new leveraged loans sold to institutional investors on Oct. 2, according to S&P Capital IQ Leveraged Commentary & Data.
The new loan is being sold to investors at 97 cents on the dollar, a steeper discount than the 99 cents initially offered, the person said.
Toys “R” Us also reduced the size of a $350 million, 5-year loan it’s seeking to $280 million, and increased the rate it will pay lenders to 7.25 percentage points more than Libor, as much as 1.75 percentage points higher than the originally proposed range, according to the person. The lending benchmark will have a 1 percent minimum.
The retailer said last month in a regulatory filing that it was seeking to refinance term loans due in September 2016, a “significant” portion of loans maturing in May 2018 and its 7.375 percent notes due in September 2016.
Earnings before interest, taxes, depreciation and amortization plunged 44 percent in the fourth quarter ended Feb. 1, according to data compiled by Bloomberg.
While revenue declined 8.7 percent during that period, sales have since trended higher. Domestic net sales stayed about the same from Aug. 3 to Sept. 27, compared with the similar period a year ago, according to a regulatory filing last week. The domestic gross margin rate, a measure of revenue after the cost of goods, increased by 1 percentage point.
Kathleen Waugh, a spokeswoman for Toys “R” Us, didn’t immediately return a phone call seeking comment on the higher-than-proposed rates the company will pay to refinance debt.
The company was taken private by KKR & Co., Bain Capital LLC and Vornado Realty Trust in a 2005 leveraged buyout.