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The author seems to be bending over backwards to make the buyers look like evil masterminds that profited from running Toys R Us into the ground... For example

The author seems to be bending over backwards to make the buyers look like evil masterminds that profited from running Toys R Us into the ground... For example, he notes that they'll have to write off their investment in Toys R Us, but makes it sound like they're making out like bandits because they got $200 million in management/consulting fees out of the deal. So, they lost a $6.6 billion investment, and made $200 million in management fees? Doesn't sound like a very successful evil plot to me. More importantly, what if this had been a success? What if they had bought Toys R Us and orchestrated a phenomenal turn-around? Would this still be a story? Would they be evil, but this time they'd be evil because they stole a public company for pennies on the dollar (a la the Dell lawsuit) and made bank when it returned to growth and profitability? A significantly more dispassionate discussion about the debt burden that goes along with a leveraged buyout would have been far more interesting to read.

bhouston 8y ago
EDIT: This comment is wrong. > So, they lost a $6.6 billion investment, and made $200 million in management fees? Doesn't sound like a very successful evil plot to me. They only had to put up 20% of the 6.6B, thus $1.32B. The rest was put up by bond investors I believe. TRU was also paying upwards of $425M per year on the debt it had. Assuming that 20% of that was to the holders of the $1.32B debt, you get $90M of interest payments. Given that the LBO happened in 2004, there have been 13 years of interest payments, which totals now $1.1B roughly. I am unsure if any principle was paid off, there are no details for that. Thus $1.1B in interest + $200M in management fees = $1.3B of their investment, discounting inflation adjustments. Basically KKR, Bain and others are at least close to net zero even though they caused TRU to fail completely. Lastly, bankruptcy just means that it is insolvent, it doesn't mean that the current debtors get nothing. If the debtors in this case had control over TRU they can ensure it goes bankrupt early enough that it can cover the liabilities to its debtors, namely themselves. If the debtors can get even 50 cents on the dollar, they are net winners.
- harryh 8y ago
  Assuming that 20% of that was to the holders of the $1.32B debt This is a very poor assumption. The PE firms bought equity in TRU, they are not paid back in the same way and on the same schedule as holders of debt.
  - bhouston 8y ago
    You are correct, the relevant passage is here: > The trio put up $6.6 billion to pay off Toys 'R' Us' shareholders. But it was a leveraged buyout: Only 20 percent came out out of the buyers' pockets. The other 80 percent was borrowed. I misjudged, I thought all of it was borrowed, just 20% was from the LBO firm.
- JumpCrisscross 8y ago
  > Given that the LBO happened in 2004, there have been 13 years of interest payments, which totals now $1.1B roughly The actual total was $470 million [1]. KKR et al lost close to a billion dollars. They will see zero recovery on their equity and close to zero recovery on their junior claims. [1] https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-vornado-suffer-wipeout-in-toys-r-us-bankruptcy https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-...

bhouston 8y ago

EDIT: This comment is wrong. > So, they lost a $6.6 billion investment, and made $200 million in management fees? Doesn't sound like a very successful evil plot to me. They only had to put up 20% of the 6.6B, thus $1.32B. The rest was put up by bond investors I believe. TRU was also paying upwards of $425M per year on the debt it had. Assuming that 20% of that was to the holders of the $1.32B debt, you get $90M of interest payments. Given that the LBO happened in 2004, there have been 13 years of interest payments, which totals now $1.1B roughly. I am unsure if any principle was paid off, there are no details for that. Thus $1.1B in interest + $200M in management fees = $1.3B of their investment, discounting inflation adjustments. Basically KKR, Bain and others are at least close to net zero even though they caused TRU to fail completely. Lastly, bankruptcy just means that it is insolvent, it doesn't mean that the current debtors get nothing. If the debtors in this case had control over TRU they can ensure it goes bankrupt early enough that it can cover the liabilities to its debtors, namely themselves. If the debtors can get even 50 cents on the dollar, they are net winners.

harryh 8y ago
Assuming that 20% of that was to the holders of the $1.32B debt This is a very poor assumption. The PE firms bought equity in TRU, they are not paid back in the same way and on the same schedule as holders of debt.
- bhouston 8y ago
  You are correct, the relevant passage is here: > The trio put up $6.6 billion to pay off Toys 'R' Us' shareholders. But it was a leveraged buyout: Only 20 percent came out out of the buyers' pockets. The other 80 percent was borrowed. I misjudged, I thought all of it was borrowed, just 20% was from the LBO firm.
JumpCrisscross 8y ago
> Given that the LBO happened in 2004, there have been 13 years of interest payments, which totals now $1.1B roughly The actual total was $470 million [1]. KKR et al lost close to a billion dollars. They will see zero recovery on their equity and close to zero recovery on their junior claims. [1] https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-vornado-suffer-wipeout-in-toys-r-us-bankruptcy https://www.bloomberg.com/news/articles/2017-09-19/bain-kkr-...