PIMCO and Marathon fund £263m Toys R Us bridging loan

By Bridging Loan Directory 4th April 2013

Toys R Us has funded a £263m fixed rate bridging loan with two principal existing CMBS note holders, PIMCO and Marathon Asset Management, ahead of a fresh securitisation, called Debussy DTC, which could close as soon as the summer, according to CoStar News.

The new bridging facility will provide Toys R Us with sufficient time to engage ratings agencies Standard & Poor’s and DBRS, and possibly Fitch Ratings, as well as draft a prospectus while repaying the maturing Vanwall Finance CMBS loan at the April 12 interest payment date.

Toys R Us confirmed that the loan may be optionally prepaid “at any time provided that prior to July 7, 2015 and subject to certain exceptions, the loans may only be prepaid in full”.

In an SEC filing published last Friday, Toys R Us confirmed a seven-year £263m loan was issued by special purpose vehicle Debussy and that it has acquired £13m of the various classes of the Debussy CMBS fixed rate notes.

CoStar News understands that the actual fresh CMBS, refinancing Vanwall Finance, is at least two to three months away, and that a bridging facility has been agreed with the existing cornerstone CMBS investors – PIMCO and Marathon – which will become noteholders in Debussy DTC once it is rated.

PIMCO is understood to be bidding against Wells Fargo to acquire the performing loans of Commerzbank’s formerly-named Eurohypo, in tandem with Starwood Capital which is bidding against Lone Star for the sub and non-performing loan pool. Six weeks ago, Marathon won the predominantly German retail-focused Project Chaminox non-performing loan pool, paying €400m.

Toys R Us repaid the outstanding total maturing £406m debt – comprised of the £345.7m Vanwall Finance CMBS loan balance and a remaining £59.85m junior loan held by the Royal Bank of Scotland, which was spun into Project Isobel – with the £263m bridging loan, $51m (£33.5m) of Vanwall Finance notes purchased in the secondary markets. The balance was paid with surplus corporate cash.

Toys R Us has confirmed that the £263m loan is secured, among other things, by 31 owned and leased nationwide UK retail outlets as well as one distribution centre, with a weighted average interest of 6.87% pa plus mandatory costs and matures on July 7, 2020.

The fresh refinancing, including the $51m (£33.5m) of notes in Vanwall Finance which converted into fresh equity in the restructured deal, implies a total portfolio value at the end of March of £296.5m.

On this basis, the whole loan LTV is 88.7%. While no confirmed information as to the composition of the £263m bridging loan is forthcoming, CoStar News understands that the whole loan likely comprises a circa £180m senior element and a £83m junior loan.

The blended weighted average interest of 6.87% is likely to be composed of around 400 basis points over three-month LIBOR for the estimated £180m senior tranche, and 10% for the estimated £83m fresh junior loan, CoStar News calculates, of which Toys R Us has confirmed it acquired £13m worth in the new capital structure.

Bain, KKR and Vornado shelve IPO exit strategy

Bain Capital Partners, Kohlberg Kravis Roberts & Co and Vornado Realty Trust, which acquired Toys R Us through a $6.6bn merger nearly eight years ago, pulled a three-year ambition to exit ownership of the global toy retailer last Friday, shelving plans for an initial public offering.

David J. Schwartz, executive vice-president, general counsel and corporate secretary at Toys R Us, wrote in an SEC filing published last Friday for the immediate withdrawal of the IPO registration, first lodged on May 28, 2010. Toys R Us cited “unfavourable market conditions and the company’s recently announced executive leadership transition”.

Gerald Storch chief executive officer Toys R Us stepped down in mid-February, in advance of last Thursday’s weak fourth-quarter results which reveal declining net income, revenue and overall sales as the toy giant struggles amid a protracted global retail slowdown.

Toys R Us operates 1,540 stores and licensed an additional 163 stores across 36 countries worldwide.

In late January, Toys R Us, through its indirect wholly-owned subsidiary, TRU France Real Estate, refinanced the matured €61m French senior loan with a five-year €48m senior loan, secured by nine properties in France, priced at 450 basis points over three-month EURIBOR.

In the same month, TRU Iberia Real Estate, Toys R Us’ Spanish property company, refinanced the €126m senior loan with a three-year €75m senior loan, with the balance in cash, secured by 26 properties located in Spain, priced at 600 basis points over three-month EURIBOR.