Mar 19, 2018

Toys "R" Us fate could be decided tomorrow

Illustration: Sarah Grillo / Axios

The future of Toys "R" Us may be determined tomorrow in a Virginia bankruptcy court hearing that one source tells me will be "explosive."

At issue will be whether liquidation of the entire U.S. business will proceed as the only option (per preference of the "B-4 lender" group) or if a parallel process can continue whereby different debtors can keep working to find a strategic or financial partner that would save around 200, strong-performing U.S. stores (via a merger with the company's much-healthier Canada business).

  • Thousands of jobs hang in the balance.
  • A liquidator bidding process also needs to be established, particularly because the job is likely too large for any one firm (even if those 200 U.S. stores are saved).
Big picture

A narrative is beginning to take hold about how Toys "R" Us is emblematic of private equity's corrosive leverage model, and how a few more big busts could fuel populist anger against the buyout bunch. Just today, Apollo-backed Claire's filed for Chapter 11.

But I don't really see it, at least not without a much broader economic pullback. Remember that both Toys and Claire's were pre-crisis deals, and there just aren't too many of those still in PE portfolios. Most of today's retail buyouts are being viewed as salvage jobs from the outset (e.g., Staples), so the downside PR risk should be far smaller. Moreover, plenty of other PE-backed retailers with large debt loads have managed to survive and, in some cases, even thrive.

This isn't to say PE did a good job managing Toys. It didn't. Many of the stores never lost their Sears-like aesthetic, nor did the company adequately work with smaller toy-makers who create differentiated product.

So if you want to blame private equity — as opposed to Amazon or a group of seemingly-intransigent lenders — blame it more for execution than model.

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Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 9 p.m. ET: 662,073 — Total deaths: 30,780 — Total recoveries: 139,426.
  2. U.S.: Leads the world in cases. Total confirmed cases as of 9 p.m. ET: 122,666 — Total deaths: 2,147 — Total recoveries: 1,073.
  3. Federal government latest: President Trump announces "strong" travel advisories for New York, New Jersey and Connecticut, rules out quarantine enforcement.
  4. State updates: Alaska is latest state to issue a stay-at-home order — New York is trying to nearly triple its hospital capacity in less than a month and has moved its presidential primary to June 23. Some Midwestern swing voters who backed Trump's handling of the virus less than two weeks ago are balking at his call for the U.S. to be "opened up" by Easter.
  5. World updates: In Spain, over 1,400 people were confirmed dead between Thursday to Saturday.
  6. 🚀 Space updates: OneWeb filed for bankruptcy amid the novel coronavirus pandemic.
  7. Hollywood: Tom Hanks and Rita Wilson have returned to U.S. after being treated for coronavirus.
  8. What should I do? Answers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk
  9. Other resources: CDC on how to avoid the virus, what to do if you get it.

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Trump flags travel adversaries for New York, New Jersey, Connecticut

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Andrew Witherspoon/Axios

President Trump said Saturday night the CDC would issue a "strong" travel advisory" for New York, New Jersey and Connecticut and that a "quarantine will not be necessary."

The big picture: With more than 121,000 people infected, the U.S. has the most COVID-19 cases in the world, exceeding China and Italy, per data from Johns Hopkins. A second wave of American cities, including Boston, Detroit, New Orleans and Philadelphia, are reporting influxes of cases.

Go deeperArrowUpdated 14 mins ago - Health

Trump rules out quarantine in New York, New Jersey, Connecticut after pushback

President Trump on the White House grounds on Saturdya. Photo: Sarah Silbiger/Getty Images

President Trump tweeted Saturday night that he's decided not to introduce quarantine enforcement measures fo New York, New Jersey and parts of Connecticut, but a "strong" travel advisory will be issued for those states.

Why it matters: The president said hours earlier he was considering the move to combat the rise in novel coronavirus cases. But he received pushback, most notably from New York Gov. Andrew Cuomo (D), who told CNN it would cause "chaos." "This would be a federal declaration of war on states," Cuomo added.

Go deeper: Updates on coronavirus in the U.S.