Toys ‘R’ Us workers face harsh reality in quest for severance

Bloomberg

Toys ‘R’ Us’s fired workers last week won the right to negotiate for severance money in bankruptcy court, in an unusual victory.
They may end up getting nothing.
Before much money can be paid to the retailer’s 33,000 former employees, senior lenders need to collect about $1 billion. For now, the staffers can try to tap a pool of $180 million
designated to pay post-bankruptcy bills, but they are competing with other creditors, like toy suppliers and the lawyers and financial advisers helping to dismantle the company. The suppliers alone are entitled to more than 85 percent of the pool at its current size.
The workers were expected to set to disclose how much money they are asking the bankruptcy court for.
Critics of the US bankruptcy process say the Toys ‘R’ Us case underscores a problem with the system: lenders usually end up better off than rank-and-file workers who had little to do with a company’s demise.
“When an outside group with a lot of money can come into a place like Toys ‘R’ Us and vacuum up all the value and leave the employees, leave the pensioners, leave the small-trade, the folks who help supply the business … and take all the value and leave nothing for anyone else, then capitalism doesn’t work. Markets don’t work,”
Senator Elizabeth Warren, a former professor at Harvard Law School who taught bankruptcy, said in an interview.
Workers’ efforts to get severance pay is just one part of the long drama of the decline and fall of Toys ‘R’ Us, which until it began liquidating this year was the largest standalone toy retailer in the US. The company took on $5 billion of debt in a leveraged buyout in 2005, a burden that left it ill-equipped to handle competition from Walmart Inc. and Amazon.com.
The Wayne, New Jersey-based toy seller is among the biggest of a string of retailers to go under, including Sports Authority and department-store chain Bon-Ton.
Toys ‘R’ Us lenders as well as Bain Capital, KKR & Co. and Vornado Realty Trust, the firms that took the retailer private, agreed to set aside $180 million to cover ‘administrative claims’, or bills the company generated after it filed for bankruptcy.
After lenders like Oaktree Capital Management and Solus Alternative Asset Management that have a first claim on the company’s assets get $1 billion, additional money could flow
to administrative claimholders too. Bain, KKR, Vornado, Oaktree and Solus all declined to comment.
It’s not clear how much money will be left over. At the start of June, Toys ‘R’ Us had just $347.2 million of cash. It finished closing its US stores last month. The company can make some extra money by auctioning off its few remaining assets, including its brand name.