Question

I am writing a paper on Financial Restructuring. I am required to pick a company that is in [potential] trouble of defaulting/bankruptcy. I have chosen Toys R Us.

I am required to:

1) Analyze the company's (Toys R Us) financial history and current financial situation.

2) Propose a financial restructuring proposal.

It is my understanding that I need to look at all possible financial statements, income statements, cash flows, and use financial tools to "financially restructure" and propose a "fix" to save Toys R Us.

What are the ways in which a company can turn itself around through the use of these financial restructuring methods?

I am not sure what to look into exactly, and how to approach this.

I am struggling with the thought of having to write 3pages on this....

Answer 1

1. The company Toys R Us is not a public company. It was acquired by KKR, Bain Capital & Vorndo Realty Trust bought the company in 2005 by Leveraged Buyout. However, according to recent reports, the their investment has been wiped out completely. This means, the cash flows being generated by the company were not enough to support the debt raised by the company. This low Debt coverage has resulted in limited cash flows to work with, and ultimately, its bankcruptcy situation. (if financials are available, then evaluate the Interest Coverage ratio = EBIT / Interest expense, and Debt Coverage Ratio)

2. Financial Restructuring Policy: It is quite evident that the company made a blunder by raising debt in excess of its servicing capability. Now, it finds itself wothout any cash to contnue operations. Considering the fact no equity infusion might be possible since the required rate of return of such a risky investment will be large, the only way forward might be to convert some of the debt to equity, which will reduce the immediate burden of servicing that debt on the company. Thus, giving it ore space to continue operations. (if we have financials, we would have to calculate the debt service capacity of the company, and aim to reduce the debt accordingly, so that cash flow is enough to cover interest expense). Remaining debt will have to be converted to equity from the same investors