Toys ‘R’ Us Refinancing Plan Eases Concerns About Default

Toys “R” Us Inc. reported improving earnings and announced a plan to refinance its debt, easing concerns that the retail chain will default on its loans.

About half the noteholders of debt due in 2017 and 2018 are involved in the agreement, the Wayne, New Jersey-based company said in a statement on Monday. The company intends to refinance 89 percent of the existing notes, replacing them with new debt that matures in five years. A third party also plans to buy as much as $50 million in new financing if the exchange offer goes through.

Following the agreement, credit-default swaps traders drove down the cost to protect against losses on Toys “R” Us debt by the most since January. It reached 991.5 basis points in New York on Tuesday, according to data provider CMA, which is owned by S&P Global Inc. That was the lowest level in almost three years.

“This represents a significant step forward in our efforts to create a strong financial foundation and pursue long-term growth,” Toys “R” Us Chief Executive Officer Dave Brandon said in the statement. Staff worked on the pact for several weeks, he said.

The company also reported preliminary results for the fiscal first quarter, which ended April 30. Same-store sales grew 0.9 percent against what Brandon described as “a challenging retail environment.” Adjusted earnings before interest, taxes, depreciation and amortization climbed 13 percent to $79 million.

“We continue to focus on more consistent execution and continued top-line growth,” Brandon said.

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