Toys R Us' business in the U.K. has tabled a compromise deal on paying its pension deficit in an effort to win over its largest creditor for a rescue plan that could stave off administration and the loss of 3,200 jobs, the Financial Times reported Dec. 20, citing sources close to the process.
The proposed concessions to the Pension Protection Fund, or PPF, include reducing the toy retailer's deficit recovery plan to 10 years from 15 years, as well as increasing a payment offered to its pension scheme by March 2018.
Talks were continuing, but a deal had not been reached as of the afternoon of Dec. 20, the FT said, citing two people with knowledge of the matter.
Earlier in December, Toys R Us unveiled a company voluntary arrangement that involves a plan to close at least a quarter of its 105 U.K. stores, which could result in the loss of up to 800 jobs.
The restructuring plan triggered the PPF's assessment of the retailer's U.K. retirement fund, which it estimated to have a funding shortfall of £25 million to £35 million.
The PPF is demanding an upfront payment of £9 million to the scheme, which is equivalent to three years of deficit contributions that the retailer was scheduled to make.
Prior to tabling concessions, Toys R Us had offered to pay about £1.6 million related to contributions due to the scheme by March 2018, but said it couldn't pay the remaining £7.3 million demanded, according to another Dec. 20 FT report that cites people briefed on the talks.
The company also argued against the PPF's suggested solution, which calls for the U.S. parent to waive an annual royalty fee to use the Toys R Us name. That is worth about £9 million per year.
Toys R Us needs the PPF's support at a vote of creditors Dec. 21 for its restructuring, but the pension lifeboat has reportedly said it intends to vote against the plan.
A failed restructuring plan would force the company into administration. Toys R Us' British arm plans to hire Alvarez & Marsal to act as administrators should it lose the vote, the FT said, citing a person close to the negotiations.
Toys R Us, which has vendors that include major toy makers Mattel Inc. and Hasbro Inc., filed for bankruptcy protection in the U.S. in September and has reported a widening net loss.