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Global Credit Research - 07 Mar 2011
New York, March 07, 2011 -- Moody's Investors Service today assigned a B1 rating to Toys "R"
Us-Delaware, Inc.'s ("Toys-Delaware")
new $400 million secured term loan due 2018. At the same
time, Moody's downgraded to B3 the senior unsecured debentures
of Toys-Delaware and the senior unsecured notes of Toys "R" Us
Property Company I, LLC ("Propco I"). All other
ratings for Toys "R" Us, Inc ("Toys"),
including the B1 Corporate Family and Probability of Default ratings,
were affirmed. Toys has an SGL-2 Speculative Grade Liquidity
rating and a stable rating outlook.
New ratings assigned:
Toys "R" Us-Delaware, Inc.
$400 million senior secured term loan due 2018 at B1 (LGD 3,
Toys "R" Us Property Company I, LLC
$928 million senior unsecured notes due 2017 to B3 (LGD 5,
78%) from B2 (LGD 5, 74%)
Toys "R" Us Delaware, Inc.
$22 million 8.75% debentures due 2021 to B3 (LGD
5, 78%) from B2 (LGD 5, 74%)
Ratings affirmed and LGD point estimates adjusted include:
Toys "R" Us, Inc.
Corporate Family Rating at B1
Probability of Default Rating at B1
$396 million senior unsecured notes due 2013 at B3 (LGD 6,
95%) from B3 (LGD 6, 93%)
$406 million senior unsecured notes due 2018 at B3 (LGD 6,
95%) from B3 (LGD 6, 93%)
Speculative Grade Liquidity rating at SGL-2
Toys "R" Us Delaware, Inc.
$700 million senior secured term loan due 2016 at B1 (LGD 3,
45%) from B1 (LGD 3, 42%)
$350 million senior secured notes due 2016 at B1 (LGD 3,
45%) from B1 (LGD 3, 42%)
Toys "R" Us Property Company II, LLC
$716 million senior secured notes at Ba1 (LGD 2, 13%)
"The affirmation of Toys' B1 Corporate Family Rating acknowledges
that despite the soft sales environment, the company continues to
perform well through a combination of disciplined inventory management,
effective merchandising, and expense control." stated
Moody's Senior Analyst Charlie O'Shea. "It also considers
that the new $400 million term loan is overall leverage neutral
as proceeds will be combined with a $100 million revolver draw
to repay $500 million in unsecured notes."
The B1 rating on the new $400 million secured term loan considers
the credit support provided by the senior unsecured notes below it in
the consolidated capital structure as well as its collateral package consisting
of second liens on assets securing the $1.85 billion unrated
asset-based revolving credit facility.
The downgrade to B3 of the Toys Delaware debentures and the Propco I senior
unsecured notes results from their weakened position in the capital structure
due to the repayment of the $500 million in Toys unsecured notes
below, and the increase of $400 million in secured debt above,
The stable outlook and SGL-2 Speculative Grade Liquidity rating
reflect Moody's view that Toys continues to be well-positioned
in the toy retailing segment, and incorporates the significant flexibility
provided by its unrated $1.85 billion secured revolving
credit facility that expires in August 2015.
Ratings could be upgraded if debt/EBITDA is sustained below 5 times.
This could occur either as a result of improvements in operating performance,
or as a result of a successful IPO and application of proceeds sufficient
to reduce debt. Ratings could be downgraded if debt/EBITDA was
sustained above 5.5 times, which could occur either as a
result of a degradation in operating performance or the institution of
a more aggressive financial policy.
The principal methodologies used in this rating were Global Retail Industry
published in December 2006, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Toys "R" Us, Inc. is a specialty retailer of toys,
with annual revenues of around $11 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
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validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B1 to Toys "R" Us term loan; affirms B1 CFR; downgrades two unsecured issues
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