Toys "R" Us, Inc.
Taj Noteholders’ $760M Stalking Horse Bid for Asia JV Includes Up To $520M Cash via Rights Offering; Debtors Seek Court Finding That Fung ROFR is Invalid, Unenforceable
Mon 08/06/2018 06:05 AM
Relevant Documents:
Plan
DS Approval Motion
Disclosure Statement
Asia JV Bid Procedures Motion
On Saturday evening and early Sunday morning, the Toys “R” Us debtors filed a joint chapter 11 plan and disclosure statement for the Taj debtors and the TRU Inc. debtors along with a motion to approve the adequacy of the DS. In addition, the Toys “R” Us Taj debtors filed a motion seeking approval of bidding procedures for the debtors’ “Asia JV Assets,” including the debtors’ 84.87% interest in Toys (Labuan) Holding Ltd.
The debtors disclose that, as memorialized in an Aug. 4 restructuring support agreement with the Taj holders steering group, the Taj group will serve as the stalking horse bidder with a $760 million bid - including up to $520 million in cash which will be raised via a rights offering backstopped by certain Taj noteholders - and that the stalking horse purchaser (an entity to be established by the group) will provide consideration partially in the form of a credit bid of Taj senior notes claims.
The Taj noteholder bid is for the 84.87% equity interest in Toys (Labuan) Holding Ltd. but does not include a bid for any portion of the intellectual property right interests currently owned by Geoffrey LLC and licensed to the Asia JV. The bidding procedures state, however, that the marketing process will consider bids for both that equity interest and the IP rights for Asia. The debtors also note that Geoffrey is currently undertaking a marketing process to sell the intellectual property assets.
The proposed Taj plan contemplates the consummation of a rights offering to raise up to $520 million of cash, all or a portion of which will be used to fund distributions to holders of allowed Taj DIP claims, as contemplated by the RSA. Certain holders of the Taj senior notes claims have agreed to facilitate the rights offering through a backstop commitment agreement and the proposed sale and restructuring transaction will be funded with - among other things - net cash proceeds of that rights offering, the debtors say. The bidding process “will provide third parties with the opportunity to submit a higher or otherwise better offer for the Asian JV Equity Interest to ensure that the Debtors’ estates maximize the value of their remaining unliquidated assets,” the debtors assert in the DS motion.
While the Taj debtors own 84.87% of the Asia JV, the remaining 15.13% is owned by Fung, a China-based retailing arm of Fung Group that formerly did business under the name Li & Fung (Retailing) Ltd. In conjunction with their proposed bidding procedures, the debtors are seeking two findings from the court relating to the treatment of the Fung minority interest in the Asia JV, including that a right-of-first-refusal provision in the shareholders’ agreement is invalid and unenforceable because it restricts assignment of the debtors’ indirect interest in the Asia JV. That restriction will act as a hindrance to the bidding process and contribute to a decline in bid prices, according to the debtors. The debtors also seek a finding that the “drag” right in the shareholders’ agreement permitting the majority holder to sell the minority interest on the same terms and conditions is enforceable according to its terms.
The Taj holders steering group comprises at least two-thirds of Taj senior note claims and includes the Taj DIP and Taj senior noteholders represented by Paul Weiss, according to the plan. As of July 13, Paul Weiss represented $449.5 million of Taj DIP noteholdings and $400.9 million of Taj senior note claims.
The hearing for approval of the disclosure statement is scheduled for Aug 30. at 1 p.m. ET, with objections due Aug. 27 at 5 p.m. ET.
Bidding Procedures Motion
The bidding procedures motion seeks the approval of procedures for the sale of the debtors’ 84.87% equity interest in Toys (Labuan) Holding Ltd. and the related intellectual property. According to the filing, the stalking horse purchaser agreement “contemplates the sale of the Taj Debtors’ indirect equity interest in the Asia JV to the Stalking Horse Bidder for $760 million.” The motion explains that the consideration for the Asia JV will consist of “(a) a credit bid of the Notes (as defined in the Stalking Horse Purchase Agreement); and (b) a cash amount.”
The motion provides a brief summary of the three rounds of bids for the Asia JV that the debtors have conducted since March, highlighting declining bids as the process progressed. According to the motion, initial bids for the debtors’ majority interest “ranged from approximately $700 million to more than $1 billion, plus additional consideration to be paid for Asia-related intellectual property.” The motion notes that the Taj debtors and their advisors “have negotiated at arm’s length and in good faith with multiple parties interested in buying the Asia JV.” According to the motion, the three rounds of bids “have produced a competitive stalking horse candidate.”
However, the motion explains that during the bidding Fung demanded to speak directly to bidders and “broadly advertised its plan to take the business by ROFR.” The debtors assert that bid values have plummeted by hundreds of millions of dollars, explaining that although “multiple factors are involved,” at least some bidders “have told the Debtors’ advisors that the ROFR threat is causing them to spend less time and effort conducting due diligence to make their best and highest offers for fear their time and money will be wasted” while “others have dropped out of the bidding process entirely because Fung’s presence as both a bidder and a ROFR party overly complicates their ability to acquire the Asia JV.”
The debtors state that by mid-May, they had received eight nonbinding second-round bids but that bid prices were trending downward and ranged from approximately $750 million to $950 million, “many of them below first round bids from the same parties.”
Noting that the court approved the debtors’ motion for bid protections on June 28, the debtors state that four days later, Fung “amplified the bid chilling by threatening ‘to pursue all remedies against TRU Asia or any prospective purchaser (including seeking specific performance of the ROFR) should the Debtors and a prospective purchaser seek to close a transaction in connection with TRU’s interests in the Asia JV without honoring the ROFR obligation.’”
The debtors say they received third round bids in late June 2018 which “fell precipitously” with one previously competitive bid falling by 15% and another by 50% (emphasis added). The number of bids also fell from eight bids in the second round to five, excluding the stalking horse bid, in the third round. The debtors say that of the three bidders that withdrew before the third round bid deadline, two told Lazard they withdrew in part because of their concerns with the ROFR.
The debtors state that while they would have no objection to a winning bidder “partnering with Fung or anyone else to own and manage the Asia JV,” they must first obtain for the benefit of creditors a binding offer at the highest possible price. The debtors state that the through the bidding process they have produced a competitive stalking horse candidate.
The stalking horse bid for the equity interest in 84.87% of the Asia JV group consists of consideration in the form of a credit bid of the 12% senior secured notes due 2021 and a cash amount. According to the stalking horse purchase agreement filed as a schedule to the bidding procedures motion, the credit bid amount is as of yet undetermined. The cash consideration will consist of $760 million, less the credit bid amount, and will be used to satisfy a portion of the Taj DIP notes. The cash consideration will be raised via a rights offering, described in detail below.
The parties note that Toys “R” Us - Delaware Inc. will provide the stalking horse bidder with certain transition services, which the debtors will seek approval of in a separate motion.
IP Assets
With respect to treatment of the intellectual property assets, the motion notes that the the Taj debtors may consider any qualified bids for the Asia JV assets, including bids that contain the IP assets and those that exclude the IP assets. Each bid must clearly set forth the purchase price in U.S. dollars to be paid for the Asia JV and the IP assets, as applicable, including and identifying separately any cash and non-cash components.
The contemplated bid procedures note that each bid must clarify whether the bidder intends to:
If a bidder intends to purchase any of the IP assets, such bidder must detail the specific trademarks and domain names that are included in the bid, and include an executed intellectual property transfer agreement. To the extent a bidder seeks to modify the license agreement or purchase underlying intellectual property, such transactions would be subject to the consent of Geoffrey LLC, the debtor say.
The motion seeks to establish the following dates and deadlines with respect to the marketing and sale of the assets, the auction, and the sale hearing:
The debtors’ disclosure statement approval motion proposes the following confirmation-related timeline:
Below is a chart of the plan’s classes, along with their impairment status and voting rights.
Treatment of Claims and Interests
The classification of and proposed distributions to holders of allowed claims and interests in the debtors’ plan is described below. The current disclosure statement does not contain estimated recoveries for any class of claims.
The “TRU Inc. silo recovery” referenced below includes (a) the balance of any sale proceeds after repayment in full of all senior claims, in accordance with the priority waterfall, (b) the value, if any, distributed to TRU Inc. on account of any contractual claims it may have against any other entity; and (c) the proceeds of the sale of assets of the TRU Inc. debtors, if any, to be distributed to holders of claims and interests in the TRU Inc. debtors according to their relative priority.
“Sale proceeds” are proceeds of the sale of TRU Asia equity interests, via the credit bid or otherwise. “Liquidation Proceeds” are separately defined to mean the proceeds from the sales of equity and/or assets of the Taj Debtors or the Reorganized Taj Debtors, as applicable, and their direct and indirect subsidiaries, other than proceeds of the sale of the TRU Asia Equity Interests.
Proposed distribution for classified claims and interests against the TRU Inc. debtors are as follows:
As noted above, the Taj plan contemplates the consummation of a rights offering - backed by certain Taj holders - to raise up to a maximum of $520 million in cash, all or a portion of which will be used to fund distributions to holders of allowed Taj DIP claims. The debtors explain in the DS motion that the backstop commitment agreement has been entered into by the debtors and certain Taj noteholders to ensure that, the debtors will receive sufficient proceeds to meet obligations under the Taj plan even in the event the rights offering is undersubscribed. The rights offering is a “vital component of the Debtors’ comprehensive restructuring under the Taj Plan,” the motion states, adding that the terms have been “extensively negotiated among the Debtors and certain of their key stakeholders.”
As noted above, the the credit bid portion of the stalking horse bid is as of yet undetermined. The cash consideration will consist of $760 million, less the credit bid amount. Therefore, at the maximum rights offering amount of $520 million, the implied credit bid amount is $240 million.
Holders of Taj senior notes as of the Aug. 30 rights offering record date will receive subscription rights to purchase equity and debt in the rights offering. Specifically, in connection with the credit bid contemplated by the Taj plan, each holder of a Taj senior note claim as of Aug. 30 would receive a pro rata share of initial purchaser common shares on account of the credit bid, subject to dilution by a commitment premium and the rights offering shares. According to the plan, the commitment premium is to be paid to the Taj noteholder commitment parties in the form of an aggregate premium payable in equity interests in the company in an amount equal to 6.5% of the rights offering amount “which amount shall, for the avoidance of doubt, factor in the Participation Discount.” A participation discount of 45% (“as compared to the implied purchase price for contributions to the Company deemed to be made by the Noteholders pursuant to the Credit Bid”) shall be applied to determine the purchase price of any equity interests in the company acquired pursuant to the rights offering, the debtors note (emphasis added).
Other Plan Provisions
The plan provides for releases by and of the debtors and certain third parties including the UCC, 8.75% unsecured notes claimants and trustee, the 7.375% notes claimants and trustee, holders of the Taj senior notes claims and trustee, the Taj steering group and members, the Taj DIP lenders, the purchaser of the Asia JV, and the Toys “R” Us sponsors - Bain Capital Private Equity LP, Kohlberg Kravis Roberts & Co. LP, and Vornado Realty Trust.
The debtors’ disclosure statement does not include financial projections, liquidation analysis or a valuation analysis.
Plan
DS Approval Motion
Disclosure Statement
Asia JV Bid Procedures Motion
On Saturday evening and early Sunday morning, the Toys “R” Us debtors filed a joint chapter 11 plan and disclosure statement for the Taj debtors and the TRU Inc. debtors along with a motion to approve the adequacy of the DS. In addition, the Toys “R” Us Taj debtors filed a motion seeking approval of bidding procedures for the debtors’ “Asia JV Assets,” including the debtors’ 84.87% interest in Toys (Labuan) Holding Ltd.
The debtors disclose that, as memorialized in an Aug. 4 restructuring support agreement with the Taj holders steering group, the Taj group will serve as the stalking horse bidder with a $760 million bid - including up to $520 million in cash which will be raised via a rights offering backstopped by certain Taj noteholders - and that the stalking horse purchaser (an entity to be established by the group) will provide consideration partially in the form of a credit bid of Taj senior notes claims.
The Taj noteholder bid is for the 84.87% equity interest in Toys (Labuan) Holding Ltd. but does not include a bid for any portion of the intellectual property right interests currently owned by Geoffrey LLC and licensed to the Asia JV. The bidding procedures state, however, that the marketing process will consider bids for both that equity interest and the IP rights for Asia. The debtors also note that Geoffrey is currently undertaking a marketing process to sell the intellectual property assets.
The proposed Taj plan contemplates the consummation of a rights offering to raise up to $520 million of cash, all or a portion of which will be used to fund distributions to holders of allowed Taj DIP claims, as contemplated by the RSA. Certain holders of the Taj senior notes claims have agreed to facilitate the rights offering through a backstop commitment agreement and the proposed sale and restructuring transaction will be funded with - among other things - net cash proceeds of that rights offering, the debtors say. The bidding process “will provide third parties with the opportunity to submit a higher or otherwise better offer for the Asian JV Equity Interest to ensure that the Debtors’ estates maximize the value of their remaining unliquidated assets,” the debtors assert in the DS motion.
While the Taj debtors own 84.87% of the Asia JV, the remaining 15.13% is owned by Fung, a China-based retailing arm of Fung Group that formerly did business under the name Li & Fung (Retailing) Ltd. In conjunction with their proposed bidding procedures, the debtors are seeking two findings from the court relating to the treatment of the Fung minority interest in the Asia JV, including that a right-of-first-refusal provision in the shareholders’ agreement is invalid and unenforceable because it restricts assignment of the debtors’ indirect interest in the Asia JV. That restriction will act as a hindrance to the bidding process and contribute to a decline in bid prices, according to the debtors. The debtors also seek a finding that the “drag” right in the shareholders’ agreement permitting the majority holder to sell the minority interest on the same terms and conditions is enforceable according to its terms.
The Taj holders steering group comprises at least two-thirds of Taj senior note claims and includes the Taj DIP and Taj senior noteholders represented by Paul Weiss, according to the plan. As of July 13, Paul Weiss represented $449.5 million of Taj DIP noteholdings and $400.9 million of Taj senior note claims.
The hearing for approval of the disclosure statement is scheduled for Aug 30. at 1 p.m. ET, with objections due Aug. 27 at 5 p.m. ET.
Bidding Procedures Motion
The bidding procedures motion seeks the approval of procedures for the sale of the debtors’ 84.87% equity interest in Toys (Labuan) Holding Ltd. and the related intellectual property. According to the filing, the stalking horse purchaser agreement “contemplates the sale of the Taj Debtors’ indirect equity interest in the Asia JV to the Stalking Horse Bidder for $760 million.” The motion explains that the consideration for the Asia JV will consist of “(a) a credit bid of the Notes (as defined in the Stalking Horse Purchase Agreement); and (b) a cash amount.”
The motion provides a brief summary of the three rounds of bids for the Asia JV that the debtors have conducted since March, highlighting declining bids as the process progressed. According to the motion, initial bids for the debtors’ majority interest “ranged from approximately $700 million to more than $1 billion, plus additional consideration to be paid for Asia-related intellectual property.” The motion notes that the Taj debtors and their advisors “have negotiated at arm’s length and in good faith with multiple parties interested in buying the Asia JV.” According to the motion, the three rounds of bids “have produced a competitive stalking horse candidate.”
However, the motion explains that during the bidding Fung demanded to speak directly to bidders and “broadly advertised its plan to take the business by ROFR.” The debtors assert that bid values have plummeted by hundreds of millions of dollars, explaining that although “multiple factors are involved,” at least some bidders “have told the Debtors’ advisors that the ROFR threat is causing them to spend less time and effort conducting due diligence to make their best and highest offers for fear their time and money will be wasted” while “others have dropped out of the bidding process entirely because Fung’s presence as both a bidder and a ROFR party overly complicates their ability to acquire the Asia JV.”
The debtors state that by mid-May, they had received eight nonbinding second-round bids but that bid prices were trending downward and ranged from approximately $750 million to $950 million, “many of them below first round bids from the same parties.”
Noting that the court approved the debtors’ motion for bid protections on June 28, the debtors state that four days later, Fung “amplified the bid chilling by threatening ‘to pursue all remedies against TRU Asia or any prospective purchaser (including seeking specific performance of the ROFR) should the Debtors and a prospective purchaser seek to close a transaction in connection with TRU’s interests in the Asia JV without honoring the ROFR obligation.’”
The debtors say they received third round bids in late June 2018 which “fell precipitously” with one previously competitive bid falling by 15% and another by 50% (emphasis added). The number of bids also fell from eight bids in the second round to five, excluding the stalking horse bid, in the third round. The debtors say that of the three bidders that withdrew before the third round bid deadline, two told Lazard they withdrew in part because of their concerns with the ROFR.
The debtors state that while they would have no objection to a winning bidder “partnering with Fung or anyone else to own and manage the Asia JV,” they must first obtain for the benefit of creditors a binding offer at the highest possible price. The debtors state that the through the bidding process they have produced a competitive stalking horse candidate.
The stalking horse bid for the equity interest in 84.87% of the Asia JV group consists of consideration in the form of a credit bid of the 12% senior secured notes due 2021 and a cash amount. According to the stalking horse purchase agreement filed as a schedule to the bidding procedures motion, the credit bid amount is as of yet undetermined. The cash consideration will consist of $760 million, less the credit bid amount, and will be used to satisfy a portion of the Taj DIP notes. The cash consideration will be raised via a rights offering, described in detail below.
The parties note that Toys “R” Us - Delaware Inc. will provide the stalking horse bidder with certain transition services, which the debtors will seek approval of in a separate motion.
IP Assets
With respect to treatment of the intellectual property assets, the motion notes that the the Taj debtors may consider any qualified bids for the Asia JV assets, including bids that contain the IP assets and those that exclude the IP assets. Each bid must clearly set forth the purchase price in U.S. dollars to be paid for the Asia JV and the IP assets, as applicable, including and identifying separately any cash and non-cash components.
The contemplated bid procedures note that each bid must clarify whether the bidder intends to:
- Continue existing intellectual property licenses for the remaining term;
- Enter into a revised licensing agreement; or
- Purchase the IP assets.
If a bidder intends to purchase any of the IP assets, such bidder must detail the specific trademarks and domain names that are included in the bid, and include an executed intellectual property transfer agreement. To the extent a bidder seeks to modify the license agreement or purchase underlying intellectual property, such transactions would be subject to the consent of Geoffrey LLC, the debtor say.
The motion seeks to establish the following dates and deadlines with respect to the marketing and sale of the assets, the auction, and the sale hearing:
- Bidding Procedures Objection Deadline: Aug. 23 at 5 p.m. ET
- Bidding Procedures Hearing: Aug. 30 at 5 p.m. ET
- Bid Deadline: Sept. 12 at 5 p.m. ET
- Auction (if necessary): Sept. 17
- Objection Deadline: Oct. 3 at 5 p.m. ET
- Sale Hearing: Oct. 10 at 1 p.m. ET
The debtors’ disclosure statement approval motion proposes the following confirmation-related timeline:
- Disclosure Statement Objection Deadline: Aug. 27 at 5 p.m. ET
- Disclosure Statement Hearing Date: Aug. 30 at 1 p.m. ET
- Voting Record Date: Aug. 30
- Solicitation Deadline: Sept. 5
- Publication Deadline: Sept. 7
- Voting Deadline: Oct. 3 at 5 p.m. ET
- Plan Objection Deadline: Oct. 3 at 5 p.m. ET
- Deadline to File Confirmation Brief: Oct. 8 at 5 p.m. ET
- Plan Objection Response Deadline: Oct. 8 at 5 p.m. ET
- Deadline to File Voting Report: Oct. 8 at 5 p.m. ET
- Taj Plan Confirmation Hearing Date: Oct. 10 at 1 p.m. ET
Below is a chart of the plan’s classes, along with their impairment status and voting rights.
Treatment of Claims and Interests
The classification of and proposed distributions to holders of allowed claims and interests in the debtors’ plan is described below. The current disclosure statement does not contain estimated recoveries for any class of claims.
The “TRU Inc. silo recovery” referenced below includes (a) the balance of any sale proceeds after repayment in full of all senior claims, in accordance with the priority waterfall, (b) the value, if any, distributed to TRU Inc. on account of any contractual claims it may have against any other entity; and (c) the proceeds of the sale of assets of the TRU Inc. debtors, if any, to be distributed to holders of claims and interests in the TRU Inc. debtors according to their relative priority.
“Sale proceeds” are proceeds of the sale of TRU Asia equity interests, via the credit bid or otherwise. “Liquidation Proceeds” are separately defined to mean the proceeds from the sales of equity and/or assets of the Taj Debtors or the Reorganized Taj Debtors, as applicable, and their direct and indirect subsidiaries, other than proceeds of the sale of the TRU Asia Equity Interests.
Proposed distribution for classified claims and interests against the TRU Inc. debtors are as follows:
- Class A1 - Other Secured Claims against the TRU Inc. Debtors: Unimpaired; At the option of the applicable TRU Inc. debtor, each holder shall receive on the effective date payment in full in cash, delivery of the collateral securing any such claim and payment of any interest required under section 506(b) of the Bankruptcy Code, reinstatement of such claim, or “such other treatment as shall render such Claim Unimpaired.”
- Class A2 - Other Priority Claims against the TRU Inc. Debtors: Unimpaired; Each holder shall receive a pro rata share of the TRU Inc. silo recovery, if any, “after paying in full in Cash all Senior Claims.”
- Class A3 - Taj Senior Notes Guaranty Claims against the TRU Inc. Debtors: Impaired, projected at $582.75 million in aggregate principal amount; Each holder shall receive a pro rata share of (a) any available liquidation proceeds after senior claims are all paid in full, (b) any available sale proceeds after all senior claims are paid in full, (c) subscription rights, and (d) any available TRU Inc. silo recovery after senior claims are paid in full, on a pari passu basis with other allowed class A3 - A8 claims to the extent set forth in the priority waterfall.
- Class A4 - Propco II Mortgage Loan Guaranty Claims against the TRU Inc. Debtors: Impaired, projected at $507 million principal amount; Each holder shall receive a pro rata share of any available TRU Inc. silo recovery (after senior claims are paid in full in cash) on a pari passu basis with other allowed class A3 - A8 claims to the extent set forth in the priority waterfall.
- Class A5 - Giraffe Junior Mezzanine Loan Guaranty Claims against the TRU Inc. Debtors: Impaired, projected at $70 million principal amount; Each holder shall receive a pro rata share of any available TRU Inc. silo recovery (after senior claims are paid in full in cash) on a pari passu basis with other allowed class A3 - A8 claims to the extent set forth in the priority waterfall.
- Class A6 - 7.375% Senior Notes Claims against the TRU Inc. Debtors: Impaired, projected at $208 million principal amount; Each holder shall receive a pro rata share of any available TRU Inc. silo recovery (after senior claims are paid in full in cash) on a pari passu basis with other allowed class A3 - A8 claims to the extent set forth in the priority waterfall.
- Class A7 - 8.75% Unsecured Notes Claim against the TRU Inc. Debtors: Impaired, projected at $22 million; Each holder shall receive a pro rata share of any available TRU Inc. silo recovery (after senior claims are paid in full in cash) on a pari passu basis with other allowed class A3 - A8 claims to the extent set forth in the priority waterfall.
- Class A8 - General Unsecured Claims Against the TRU Inc. Debtors: Impaired; Each holder shall receive a pro rata share of any available TRU Inc. silo recovery (after senior claims are paid in full in cash) on a pari passu basis with other allowed class A3 - A8 claims to the extent set forth in the priority waterfall.
- Class A9 - TRU Inc. Debtor Intercompany Claims against other TRU Inc. Debtors: Unimpaired or impaired; Each claim shall be either reinstated or canceled and released.
- Class A10 - TRU Inc. Intercompany Interests: Unimpaired or impaired; Interests in the TRU Inc. debtors other than TRU Inc. shall be either reinstated or canceled and released.
- Class A11 - TRU Inc. Interests: Impaired; Each interest shall be canceled and released, but the debtors note that “for the avoidance of doubt, new TRU Inc. Interests may be issued pursuant to the Toys Delaware Plan, subject to the consent of the Taj Holders Steering Group” (emphasis added).
- Class B1 - Other Secured Claims against the Taj Debtors: Unimpaired; Each holder shall receive, at the option of the applicable Taj debtor, payment in full in cash, delivery of the collateral securing any such claim and payment of any interest required under section 506(b) of the Bankruptcy Code, reinstatement of such claim, or “such other treatment as shall render such Claim Unimpaired.”
- Class B2 - Other Priority Claims against the Taj Debtors: Unimpaired; Each holder shall receive payment in full in cash “or such other treatment as shall render such Claim Unimpaired.”
- Class B3 - Taj Senior Notes Claims against the Taj Debtors: Impaired; Each holder shall receive a pro rata share of: (a) liquidation proceeds, if any, after all senior claims are paid in full, (b) sale proceeds, if any, after all senior claims are paid in full; and (c) the subscription rights.
- Class B4 - General Unsecured Claims against the Taj Debtors: Impaired; Each holder shall receive its share of (a) liquidation proceeds, if any, after all senior claims are paid in full, and (b) sale proceeds, if any, after all senior claims are paid in full.
- Class B5 - Taj Debtor Intercompany Claims against other Taj Debtors: Unimpaired or impaired; each claim shall be reinstated, canceled, or compromised as determined between the Taj debtors and the Taj holders steering group (or the credit bid purchaser “if the Credit Bid Purchaser is the Successful Bidder”), as applicable.
- Class B6 - Taj Debtor Intercompany Interests against the Taj Debtors: Unimpaired or impaired; Each claim shall be reinstated, canceled, or compromised as determined between the Taj debtors and the Taj holders steering group (or the credit bid purchaser “if the Credit Bid Purchaser is the Successful Bidder”), as applicable.
- Class B7 - Interests in TRU Europe: Impaired; Each holder of an interest shall receive its share of (a) liquidation proceeds, if any, after all senior claims are paid in full, and (b) sale proceeds, if any, after all senior claims are paid in full.
As noted above, the Taj plan contemplates the consummation of a rights offering - backed by certain Taj holders - to raise up to a maximum of $520 million in cash, all or a portion of which will be used to fund distributions to holders of allowed Taj DIP claims. The debtors explain in the DS motion that the backstop commitment agreement has been entered into by the debtors and certain Taj noteholders to ensure that, the debtors will receive sufficient proceeds to meet obligations under the Taj plan even in the event the rights offering is undersubscribed. The rights offering is a “vital component of the Debtors’ comprehensive restructuring under the Taj Plan,” the motion states, adding that the terms have been “extensively negotiated among the Debtors and certain of their key stakeholders.”
As noted above, the the credit bid portion of the stalking horse bid is as of yet undetermined. The cash consideration will consist of $760 million, less the credit bid amount. Therefore, at the maximum rights offering amount of $520 million, the implied credit bid amount is $240 million.
Holders of Taj senior notes as of the Aug. 30 rights offering record date will receive subscription rights to purchase equity and debt in the rights offering. Specifically, in connection with the credit bid contemplated by the Taj plan, each holder of a Taj senior note claim as of Aug. 30 would receive a pro rata share of initial purchaser common shares on account of the credit bid, subject to dilution by a commitment premium and the rights offering shares. According to the plan, the commitment premium is to be paid to the Taj noteholder commitment parties in the form of an aggregate premium payable in equity interests in the company in an amount equal to 6.5% of the rights offering amount “which amount shall, for the avoidance of doubt, factor in the Participation Discount.” A participation discount of 45% (“as compared to the implied purchase price for contributions to the Company deemed to be made by the Noteholders pursuant to the Credit Bid”) shall be applied to determine the purchase price of any equity interests in the company acquired pursuant to the rights offering, the debtors note (emphasis added).
Other Plan Provisions
The plan provides for releases by and of the debtors and certain third parties including the UCC, 8.75% unsecured notes claimants and trustee, the 7.375% notes claimants and trustee, holders of the Taj senior notes claims and trustee, the Taj steering group and members, the Taj DIP lenders, the purchaser of the Asia JV, and the Toys “R” Us sponsors - Bain Capital Private Equity LP, Kohlberg Kravis Roberts & Co. LP, and Vornado Realty Trust.
The debtors’ disclosure statement does not include financial projections, liquidation analysis or a valuation analysis.
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