Toys R Us (Long Trickle-Down Effects): Mattel & Hasbro

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Toy Suppliers Get Hammered by Toys R Us Bankruptcy

Callback to the Toys R Us bankruptcy whereMattel Inc. ($MAT) was listed as one of the toy behemoth's largest unsecured creditors, owed a staggering $135.6mm. Notably, that was a big enough loss for Mattel to agree to sit on the DOJ-appointed official committee of unsecured creditors. For the uninitiated, that's a committee with fiduciary responsibilities to similarly situated unsecured creditors: it's a time commitment. Why do we mention this? Well, Mattel reported earnings this week and...they...were...pretty, pretty, PRETTY brutal. Quick recap: 13% sales decline. 22% domestic sales decline (half of which they directly attributed to Toys R Us). Those creepy-a$$ American Girl dolls? Down 30%. Consequently, the company announced a dividend suspension and a $650mm expense reduction; it also announced that it will explore the capital markets for an asset-based loan and lever up its balance sheet. So, in summary, here is this "disruption" illustrated:

Boatload of LBO-based debt 💰 + "Amazon Effect" = 😱  Toys R Us Bankruptcy 😱  = Mattel Inc. $135mm claim + 22% ⬇️  in domestic sales (American Girl ⬇️ , Barbie ⬇️ , Hot Wheels ⬇️ ) = Mattel stockholder/dividend-seeker 💩 = Mattel employees & supply chain ⬇️❗️= ABL lender💰💰💰❗️ = Kids don't care because video games are 🔥🔥  = Toys R Us & Mattel death spiral❓ 

Suffice it to say, Jefferies is skeptical about the turnaround plan. Finally, we should note that Hasbro Inc. ($HAS) also reported a 5% hit because of Toys R Us; it was the third largest unsecured creditor in bankruptcy to the tune of $59mm. Despite this, the stock went up on revenue and profit beats (thank you, Luke Skywalker, you're they're only hope).

Notable (Cov Lite Loans, Delaware Bankruptcy Filings & More)

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More = Busted Tech, Investment Banks & REITS

Biglaw. Summer Associate satisfaction surveys (firewall). In case anyone actually gives a sh*t.

Busted Tech. A view that recent IPOs will never make money. Meanwhile, Toys R Us is a harbinger of, you guessed it, BUSTED TECH. 

Canadian Retail. Also looking increasingly ugly.

Cov Lite. We're old enough to remember when people said it was dead and would never come back. Memories are short AF. 

Delaware. This article about retail bankruptcy cases avoiding filing in Delaware misses the mark widely. Like, way outside. Any DE practitioners want to opine - without attribution - on this?? Email us here.

Investment Banking. Jefferies can't trade for sh*t but advisory fees baby. Given these advisory fees, it looks like UBS wants to get back into the restructuring advisory game. Again. For, like, the 283th time. 

J.Crew. Investors are pissed.

New York. Is it in danger of becoming Detroit?

Puerto Rico. The hits just keep on coming. Sad, really.

REIT Investments. This is an interesting piece about alternative investments by REITS. Simon Property Group ($SPG) looks particularly active.

Retail (Taxes). When you're industry is in secular decline, fight for scraps. Here, tax changes.

Notable (Contura Energy, Effed Education, Footwear, Memorial Production Partners)

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Contura Energy. The Tennessee-based metallurgical and steam coal company - probably better known in these parts as the once-and-recently-bankrupt Alpha Natural Resources filed for an IPO on Monday with plans to raise $100mm on the NYSE under the symbol $CTRA (Citi is sole underwriter). 

Education. Months ago we chronicled the affect that the oil and gas downturn was having on Oklahoman schools. Unfortunately, high debt and poor management in Puerto Rico seems to be having a similarly horrible affect on school children.

Footwear. Seven companies that are allegedly/particularly impacted by the recent wave of retail bankruptcies.

Labor Market. This study indicates that there is no unprecedented technological disruption. Seems counter-intuitive.

Memorial Production Partners/Amplify Energy. The company has emerged from chapter 11 with a new name and a delevered balance sheet to the tune of $1.3b. And now it has engaged Jefferies LLC as lead advisor to explore strategic alternatives.Fir Tree Partners, Millennial Energy Partners and Citadel LLC have representatives on the Board of Directors.

Passive Investing. There are now more index funds than there are individually traded stocks. Wait, what??