Pensions lifeboat could sink Toys R Us revamp


The UK’s pensions lifeboat is weighing whether to reject a restructuring proposal for Toys R Us’s British operations amid questions about a big loan write-off and bonuses awarded to company bosses.

Sky News has learnt that the pension trustees of Toys R‎ Us in the UK have appointed PricewaterhouseCoopers (PwC), the professional services firm, to advise them on a plan unveiled last week that will involve closing a quarter of its British stores.

Sources said this weekend that PwC’s appointment had been made with “the explicit encouragement” of the Pension Protection Fund (PPF), the industry-funded body which funds the retirement obligations of bankrupt companies with defined benefit pension schemes.
The PPF and the trustees have not definitively decided to oppose the so-called Company Voluntary Arrangement (CVA), a mechanism which shields financially troubled businesses from their‎ creditors.
However, insiders said this weekend that the PPF, which could end up taking on the scheme, was concerned that the CVA proposal may be “simply kicking the can down the road”.
One pension industry source said the PPF shared reservations expressed by the Labour MP Frank Field, who chairs the Commons Work and Pensions Select Committee, about the decision by Toys R Us UK to wave loans worth more than £580m to a holding company in the British Virgin Islands.
The UK pension scheme is thought to hold roughly 20% of the creditors’ votes‎ eligible to be cast in the CVA, giving it a potentially decisive say in whether the plan gets approved.
The restructuring will require the approval of a 75% majority of the company’s creditors, and is expected to result in making well over 500 of Toys R Us’s UK staff redundant.
It will also entail closing at least 26 of its 100 British shops.
Alvarez & Marsal, a specialist adviser on corporate insolvencies, is handling the CVA proposal.
All of the affected Toys ‘R’ Us shops will remain trading throughout the Christmas period and well into the new year, but will begin closing from next spring.
The chain’s larger out-of-town stores will be disproportionately affected by the closure plan, owing to their weak performance amid a fast-changing outlook for the high street.
“Our newer, smaller, more interactive stores are in the right shopping locations and are trading well, while our new website has generated significant growth in online and click-and-collect sales,” Steve Knights, Toys R Us’s UK managing director said last week.

“But the warehouse-style stores we opened in the 1980s and 1990s, while successful in the early days, are too big and expensive to run in the current retail environment.
“The business has been loss-making in recent years and so we need to take strong and decisive action to accelerate the transformation.”
It was unclear whether other Toys R Us landlords and other creditors will be prepared to back the proposal, although industry analysts believe the business will have a bleak future unless it is approved.
In Britain, retailers including BHS, Focus DIY and JJB Sports have all used CVAs to exit loss-making stores, although all three companies ultimately succumbed to the fast-changing retail environment.
Toys ‘R’ Us’s UK operations are understood to have been loss-making in seven of the last eight financial years.
Accounts for the year to January show turnover of £418m, on which it made an operating loss of £0.5m.
The effort to overhaul its UK estate follows the filing by Toys ‘R’ Us’s American parent for Chapter 11 bankruptcy protection in September.
That move has sparked controversy over the company’s move to pay up to $21m in bonuses to top executives, which it claims is necessary to motivate them during the critical Christmas trading season.In a statement issued on Sunday, a PPF spokesperson said: ”We are working closely with the trustees of the Toys R Us pension scheme given the current CVA proposals.
“The filing of CVA proposals means that an assessment period is automatically triggered for a pension scheme.

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“However, this does not mean that the scheme, or its members, will be transferred into the PPF.
“Whatever the outcome of the CVA the pension scheme members can be reassured that they remain protected.”

Source: Sky

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