Toys ‘R’ Us’s $1 Billion Goldman Sachs-Led Loan Plunges

Toys “R” Us Inc.’s $1.025 billion loan plunged in trading a day after the retailer boosted the interest rate on the financing to persuade lenders to sign on to the deal.

The loan coming due in 2020 and issued at 97 cents on the dollar by Goldman Sachs Group Inc., is being quoted today at about 92 cents, according to prices compiled by Bloomberg. The Wayne, New Jersey-based company increased the rate on the loan to 8.75 percentage points more than the London interbank offered rate, with a minimum of 1 percent on the lending benchmark. That compares with an initially offered range of 8 percentage points to 8.25 percentage points more than Libor, according to data compiled by Bloomberg.

Kathleen Waugh, a spokeswoman for Toys “R” Us, and Tiffany Galvin, a Goldman spokeswoman, declined to comment.

The debt was part of a $1.3 billion pact that included a $280 million 5-year loan, Bloomberg data show.

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. Moody’s grades Toys “R” Us B3 with a “negative” outlook that’s unchanged by the refinancing effort. S&P ranks it B-, equivalent to the Moody’s level, with a “stable” outlook.

‘Challenged’ Performance

The proposed margin is more than double 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 company “remains hamstrung by the significant levels of LBO debt,” that still remain, according to a Sept. 29 Moody’s report. “The company will be challenged to improve its operating performance meaningfully throughout 2014, with these proposed new debt issuances alleviating the liquidity concern surrounding the 2016 debt maturities,” the analysts wrote in the report.

The retailer was purchased by KKR & Co., Bain Capital LLC and Vornado Realty Trust in a $6.6 billion 2005 leveraged buyout.

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