Jimmy Higgins
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- Jan 31, 2001
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- Calvinistic Atheist
Used money they didn't have to buy a company.article said:Bankrupt Toys 'R' Us Inc is preparing to sell or close all 885 stores in its U.S. chain, risking up to 33,000 jobs, after failing to reach a deal to restructure billions of dollars in debt, a person familiar with the matter said on Wednesday.
...
With shoppers flocking to online platforms like Amazon.com Inc (AMZN.O) and children choosing electronic gadgets over toys, Toys 'R' Us has struggled to service debt from a $6.6 billion leveraged buyout by private equity firms KKR & Co LP (KKR.N) and Bain Capital and real estate investor Vornado Realty Trust (VNO.N) in 2005.
Yes, yes, retail has been struggling because of Walmarts, Targets, and Amazons.
Here is the thing. In 2016, Toys R Us made $460 million in pre-tax profit. So ummm...
... I know I know, I'm just an engineer, so I guess I'm okay with math, and it makes me wonder, how does a company that made $460 million in pre-tax profit from over $11 billion sales... go bankrupt?
There is the small thing about the $457 million in interest for the year.
Yeah, spending money you don't have to buy a company... and destroy it because of the debt you acquired to buy... not because of the company itself. Gillette and Hicks royally fucked up the finances of Liverpool FC with their leveraged buyout.
In 2003, Toys R Us had $262 million pre-tax profit, and interest of $142 million. See, making money. Now, the toy business is rough with Walmart and Target and Moodys and the like were cautious about the credit rating of Toys R Us which was Ba1 in 2004. Not great, but certainly a lot better than what is coming up.
Then almost immediately after the acquisition, Moody's slashed Toys R Us rating.
By 2006 with more downgrades, their interest expenses tripled, and began the royally fucking that would doom the company. Not Walmart, Target, and Amazon, but reckless debt.Moody's said:Moody's Investors Service downgraded the corporate family rating of Toys "R" Us, Inc. to B1, the senior unsecured notes rating to B3, and the Speculative Grade Liquidity Rating to SGL-2, and left all ratings on review for possible further downgrade. These actions result from the significant increase in leverage as a result of the July 21, 2005 closing of the acquisition of Toys "R" Us, Inc. by a consortium consisting of Kohlberg Kravis Roberts & Co. ("KKR"), Bain Capital Partners LLC ("Bain"), and Vornado Realty Trust ("Vornado") for $6.6 billion plus the assumption of debt.