$20 million fund set aside for laid-off Toys R Us workers
In a unique move among private equity-backed companies that file for bankruptcy, thousands of former Toys R Us workers will soon receive severance payments from a $20 million fund.
Bain Capital and Kohlberg Kravis Roberts announced Tuesday each had committed $10 million to a fund for former Toys R Us workers. Bain and KKR are two of the three firms that bought Toys R Us in a 2005 leveraged buyout and loaded it with billions of dollars in debt before liquidating the chain in June. One hundred percent of contributions to the fund will be paid directly to eligible employees. The fund is structured so that other “interested parties” can contribute, but it was not immediately clear whether a third Toys R Us owner, Vornado Realty Trust, would commit as well.
“This is a valuable and important step designed to provide a degree of financial relief to eligible former employees of Toys ‘R’ Us,” said Kenneth Feinberg, an expert on designing compensation funds and one of the fund’s independent administrators.
Exactly how the funds are distributed will be framed around company data including earnings and the number of hours worked, as well as input from former Toys R Us employees. A draft of the proposal suggests eligible employees must have worked for Toys R Us for at least one year, have made no more than $110,000 in annual income and have made no less than $5,000 in annual income.
The worker rights group Rise Up Retail has advocated that thousands of Toys R Us workers are owed $75 million in severance pay. Before filing for bankruptcy last year, Toys R Us had guaranteed its workers two weeks of severance for their first year of service, and one week of pay for every two years on the job after that. Rise Up Retail is also pushing for state and federal legislation that would require bankrupt companies to make severance payments.
Toys R Us cited $7.9 billion in debt against $6.6 billion in assets when it filed for bankruptcy in 2017. In March, the company announced it would close all 800 of its U.S. stores.
The beloved toy company was one of dozens of private equity-backed retailers to file for bankruptcy amid massive changes to the industry. Citing heavy debt loads, retailers including Nine West, Claire’s, Gymboree, True Religion and Payless Shoe Source also recently filed for bankruptcy.
There will be a two-week period for former workers and other interested parties to give feedback on the fund’s terms and conditions. Feinberg and Camille Biros, another compensation fund expert and the fund’s second independent administrator, will then outline a final protocol. The claims process is expected to begin on Dec. 15. Money will be distributed shortly after, and will likely be completed on or about April 30, 2019. Neither Bain nor KKR will have any role in distributing money or administering the fund.
In a statement, Bain and KKR said a “unique set of circumstances … called for a unique solution.”
“The confluence of the disruption in retail, the push by the company’s secured creditors to liquidate the company’s U.S. operations, and the fact that we have never experienced something like this in the history of either firm, led us to try and find a way to provide some financial relief for former employees,” the firms said.