On May 31, 2018, an affiliate of Fairfax Financial Holdings Ltd. (Fairfax) acquired all of the share capital and business of Toys “R” Us (Canada) Ltd. Toys “R” Us (Canada) Ltee (Toys Canada) for a purchase price of $300 million subject to certain working capital adjustments. The share transaction, which was completed in connection with Toys Canada’s emergence from restructuring proceedings under the Companies’ Creditors Arrangement Act (the CCAA) and Chapter 11 of the U.S. Bankruptcy Code, has enabled Toys Canada to continue as a going concern without compromising creditor claims and preserved Toys Canada’s position as Canada’s leading toy and baby retailer.
Toys Canada was the Canadian operating entity in the Toys “R” Us corporate group (the Company). On September 19, 2017, Toys Canada commenced CCAA proceedings in response to liquidity and supply challenges affecting the global Toys “R” Us business. The previous day, Toys “R” Us, Inc., certain of its US subsidiaries and Toys Canada filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code.
The plenary CCAA and Chapter 11 proceedings and the integrated nature of the Company’s financing arrangements necessitated significant cross-border cooperation in the restructuring proceedings. The Canadian business of Toys Canada continued its strong performance and operated without significant disruption during the CCAA proceedings. However, the Company’s efforts to complete a global going concern restructuring to address its overleveraged capital structure were hampered by the significant underperformance of its US business. As a result, in March 2018, the Company decided to commence an orderly wind-down and liquidation of its US business while simultaneously pursuing a going concern sale of the Canadian business.
The Company’s sale process resulted in Fairfax and Toys “R” Us – Delaware, Inc. entering into a Share Purchase Agreement dated as of April 19, 2018, under which it was agreed that an affiliate of Fairfax would purchase all of the share capital of Toys Canada. The transaction required approvals from both the US bankruptcy court and the CCAA court, which approvals were received on April 25, 2018 and April 27, 2018, respectively. On May 9, 2018, the Canadian court issued an order authorizing the termination of the CCAA proceedings upon completion of the Toys Canada transaction, which subsequently closed on May 31, 2018. As a result of the completion of the transaction, Toys Canada has emerged from creditor protection under the ownership of a leading Canadian asset management firm with significant investments and experience in the Canadian retail sector.
Toys Canada’s in-house counsel was Jennifer Sernaker-Tytel. Toys Canada was represented in Canada by Goodmans LLP, with a team that included Brian Empey, Melaney Wagner, Chris Armstrong, Bradley Wiffen and Andrew Harmes (restructuring), Celia Rhea and Geoff Cowper-Smith (corporate), Dan Dedic and Karen Vadasz (banking), Carrie Smit and Glenn Ernst (tax), Richard Annan (competition), Joe Conforti (employment) and Ken Herlin (real estate).
Fairfax’s acquisition of Toys Canada was led by in-house counsel Derek Bulas, Christos Gazeas and Bryan Bailey. Fairfax was also represented by Torys LLP with a team that included David Chaikof, Tony DeMarinis, Yvan Moquin, Renee Matthews, Eli Monas and Riley Harmon (corporate/restructuring), John Tobin (tax), Amanda Balasubramanian and Simon Williams (banking), Omar Wakil (competition), Blair Keefe (regulatory), and Andy Gibbons and Andrew Bedford (real estate).
The Company was represented by Kirkland & Ellis LLP, with a team including Chad Husnick, Emily Geier and Joshua Altman (restructuring), Steve Toth (corporate) and Anthony Vincenzo (tax).
The Monitor in the CCAA proceedings was Grant Thornton Limited, represented by Cassels Brock & Blackwell LLP with a team comprised of Shayne Kukulowicz, Jane Dietrich, Natalie Levine, Monique Sassi and Sophie Moher (restructuring) and Chuck Rich (financial services).
Blake, Cassels & Graydon LLP, represented by Linc Rogers (restructuring) and Aimee Yee (banking), was Canadian counsel to JPMorgan Chase Bank N.A. and JP Morgan Chase Bank N.A., Toronto Branch, as the Company’s DIP lender. The DIP lender was represented in the US by Davis Polk & Wardell LLP, with a team that included Veerle Roovers, Marshall Huebner, Eli Vonnegut, Stephen Piraino and Erik Jerrard (restructuring), and Kenneth Steinberg and Christian Fischer (banking).
Norton Rose Fulbright Canada LLP was counsel to Bank of America, N.A., as agent for Toys Canada’s new asset based revolving credit facility, with a team that included David Amato and Noah Schein (banking) and Evan Cobb (restructuring).
Osler, Hoskin & Harcourt LLP was Canadian counsel to a group of B4 term loan lenders to the Company, with a team that included Marc Wasserman, Alex Cobb, Michael De Lellis, Patrick Riesterer and Andrea Lockhart (restructuring). The B4 term loan lenders were represented in the US by Joshua Feltman, Emil Kleinhaus and Angela Herring (restructuring) of Wachtell, Lipton, Rosen & Katz LLP.
Bennett Jones LLP was Canadian counsel to the US official committee of unsecured creditors with a team that was led by Kevin Zych and Sean Zweig (restructuring). The official committee was represented in the US by Kenneth Eckstein, Adam Rogoff, Stephen Zide, Rachael Ringer and Nathaniel Allard (restructuring) of Kramer Levin Naftalis & Frankel LLP.
Linda Galessiere of Camelino Galessiere LLP was counsel to Ivanhoe Cambridge Inc., Cushman & Wakefield Asset Services Inc., SmartCentres Real Estate Investment Trust and Morguard Investments Ltd., each being landlords or agents and managers of landlords of Toys Canada.