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Toys 'R' Us Debt Deepens Decline As News Reports Infer Bankruptcy

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Toys 'R' Us Debt Deepens Decline As News Reports Infer Bankruptcy

Bonds backing Toys ‘R’ Us renewed their recent dramatic slide today as news reports suggesting that a bankruptcy is increasingly inevitable pushed the issuer’s debt structure deep into distress.

So stark is the selloff that the company’s most pressing maturity—a $208 million issue of 7.375% senior unsecured holdco notes due 2018—has halved in value in the past two weeks.

The bonds traded at just 46 cents on the dollar today, according to MarketAxess, down from quotes of 60/65 yesterday morning and off a staggering 51 points from Sept. 4, when before bankruptcy rumors surfaced the bonds traded in a 97 context.

Several news stories fueled the move today. Debtwire is reporting that the company has retained Prime Clerk, a bankruptcy claims and noticing agent, while Bloomberg followed Debtwire with reports that the company’s vendors have scaled back shipments on heightened bankruptcy fears.

The Toys ‘R’ Us B-4 term loan due April 2020 was quoted at a 63.875 bid today, down roughly two points from the last session, and a fresh low for the year, sources said. The paper has plunged more than 10 points since the start of the month.

Initial expectations had pointed to a potential distressed exchange for the 2018 notes, given that the fall in bond prices would facilitate a take-out at a much more favorable price. However, because of the extremely negative price action, bankruptcy in the form of a pre-pack is increasingly possible, sources said.

The company’s complex capital structure will see $400 million of secured and unsecured debt maturing in May and October 2018, with $2.6 billion due in 2019.

S&P Global Ratings last week downgraded the issuer’s corporate rating to CCC+, from B–. Ratings at Moody’s and Fitch are B3/CCC, respectively.

Toys ‘R’ Us is expected to report its second-quarter results on Sept. 26. — Staff reports