Fallout from Toys R US & More Distressed Retail

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Blah, Blah, Private Equity = Death to Retail?

Courtesy of the New Yorker, some more Toys "R" Us history here. Mattel ($MAT) had to amend its credit agreement, reflecting significant leverage ratio uncertainty after the Toys "R" Us bankruptcy filing. Jakks Pacific Inc. ($JAKK) reported that it now expects a net loss in '17 and then, as if to pour salt on the wound, the ratings agencies unleashed a downgrade. Folks are getting increasingly nervous about the retail fallout amidst conflicting reports about store closures/openings. PETITION NOTE: lost in all the noise around Toys is that their new business plan calls for increased employee wages - implying a belief that Walmart's ($WMT) wage increases have helped Walmart provide a better "experience."  PETITION NOTE II: It appears that the lenders firmly believe that comparisons between Toys "R" Us and (liquidated) Circuit City are misplaced. Toys is THE LAST LARGE free-standing toy seller. Circuit City was generally expendable given that, at the time, the space was considered saturated and uber-competitive. Now, Best Buy ($BBY - up ~26% YTD, which is down after cratering the other day) fills that void. Just like Barnes & Noble ($BKS - down ~37% YTD) fills the (physical) book void (well, at least until Amazon book stores sprout in force - already it's popping up in New York and LA). And Dick's Sporting Goods ($DKS - down ~50% YTD) now has significant sporting goods market share. We're not saying WE would invest on this "LAST" basis because we wouldn't be caught dead with DKS, BKS or BBY in the PETITION 401(K); but, we are saying that the lenders appear to be lending, at least in part, on that basis. And word is that the DIP is over-subscribed (and Reorg Researchcaptures how lenders are clamoring for inclusion). Meanwhile, the list of distressed retailers seems to grow by the day: note: Belk Inc., Fresh Market, Bi-Lo, 99 Cents Only Stores and more (blah blah, private equity). But, to put an exclamation point on this, see, "Private equity drove Toys "R" Us into bankruptcy, sure, but that isn't quite the same thing as destroying it."