Toys ‘R’ Us Canada files for creditor protection with $160 million in debt

Toys “R” Us Canada announced on Tuesday that it is seeking protection from its creditors as it deals with $160 million in debts and tens of millions in outstanding gift card obligations.

The retailer, which once had more than 100 stores scattered throughout the country, has had its footprint shrink dramatically with 57 store closures in the past 12 months.

Now, just 22 stores remain across the country, according to court records, which confirm what the Edmonton Journal and Financial Post reported previously.

The records, filed with the Ontario Superior Court of Justice, show Toys “R” Us experienced a “significant” decline in revenue, which resulted in “severe liquidity and working‑capital constraints.”

The documents indicate that increased competition from big box stores and online retailers led to reduced revenues and falling consumer demand. The struggles have left the chain with a staggering amount of debt.

One notable drag on its books is a vast amount of unredeemed gift cards. According to the court documents, as of late November, Toys “R” Us had roughly $36 million in outstanding gift card obligations. The company is asking for the court’s approval to honour the cards for a period of 14 days.

If approved, it would mean Canadians would have two weeks to spend $36 million on toys.

The court records detail a long list of creditors. Toys “R” Us owes more than $120 million to domestic and foreign merchandise vendors. It owes $26 million to service providers and other non-trade vendors and nearly $5 million for unpaid rent, property taxes and other amounts related to its remaining stores.

The chain also owes more than $8 million to separate entities, including Putman Investments, which owns the company, for a mixture of accrued but unpaid management fees, licence costs and other amounts.

Toys “R” Us is seeking to restructure under the Companies’ Creditors Arrangement Act.

The CCAA designation is meant to give companies owing more than $5 million in debt some time and space under court supervision to restructure operations to maximize the value of the business. It’s a measure that avoids bankruptcy and allows operations to continue so that creditors can be paid back over time.

Founded in the late 1950s in the United States by Charles Lazarus, Toys “R” Us landed in Canada in 1984 with its first store in Brampton, Ont.

When the U.S. parent filed for bankruptcy in 2017, the Toronto-based investment firm Fairfax Financial Holdings Ltd. bought the chain’s Canadian assets for about $300 million.

Later, in 2021, Canadian entrepreneur Doug Putman bought the 81 Canadian stores from Fairfax for an undisclosed amount to keep the brand alive in Canada.

From there, Putman helped bring the brand to its peak of 103 stores across Canada until the closures began to creep up across the country two years ago.

Toys “R” Us Canada said in a press release that as it winds through the CCAA proceedings, it will evaluate its “strategic alternatives” and start restructuring.

“These initiatives will include reducing its retail footprint to better position (Toys “R” Us) in today’s retail environment. All of TRU Canada’s currently active stores will remain open during this process,” states the press release.

zdelaney@postmedia.com