The U.K. arm of toy retailer Toys R Us averted immediate collapse on Dec. 21 after it reached an agreement with a pension bailout fund that threatened to scuttle its restructuring effort unless it put up more cash.
The Pension Protection Fund, or PPF, a statutory fund that provides compensation to members of eligible defined pension plans when employers suffer insolvency, said in a statement that it had secured a deal with Toys R Us U.K. and its advisers that paved the way for the retailer to reduce its obligations and to pursue a new business model.
Without the support of the PPF, Toys R Us U.K. could not obtain a so-called company voluntary arrangement, or CVA, a legally binding agreement with its creditors and an alternative to bankruptcy. Failure to gain a CVA would have forced the business into administration, jeopardizing the jobs of 3,200 workers.
The CVA was approved later Dec. 21, Toys R Us U.K. said in a statement.
In order to win PPF backing, Toys R Us U.K. agreed to pay £9.8 million into the pension plan — comprising £3.8 million in 2018 and £6 million in 2019 and 2020 — and to shorten its deficit recovery plan to 10 years from 15 years.
"This offer goes a long way to addressing the PPF's concerns and in derisking the pension scheme, offering greater protection for the current and retired members in the pension scheme," Malcolm Weir, the PPF's director of restructuring and insolvency, was quoted as saying in the statement.
According to the Financial Times, the PPF is the largest creditor of Toys R Us U.K. due to a shortfall of £25 million to £35 million in its retirement fund. The obligation was sufficient to give the PPF an effective veto over any deal with Toys R Us U.K.'s creditors.
The PPF reportedly has played hardball with Toys R Us U.K. following a chastening experience with failed clothing retailer BHS, which had a pension fund deficit of £571 million when it went into administration in April 2016.
"We are pleased to have secured the support of our creditors and will be working closely with them in the months ahead," Toys R Us U.K. Managing Director Steve Knights said in a statement. "The vote in favor of the CVA represents strong support for our business plan and provides us with the platform we need to transform our business so that we can better serve our customers today and long into the future."
As part of its restructuring, 26 of its 105 stores in the U.K. have been earmarked for closure.
Toys R Us on Sept. 18 filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court in Richmond, Va., to give it time to restructure its debt. It has $5 billion of debt maturing in 2018.
