‘How can they walk away with millions and leave workers with zero?’: Toys R Us workers say they deserve severance

Toys R Us is in the process of closing all 800 of its U.S. stores. (Luke Sharrett/Bloomberg News)

By Abha BhattaraiJune 1 at 4:07 PM

Toys R Us isn’t paying severance to its 30,000 workers who will lose their jobs as the retailer shuts down, even though it doled out millions in executive bonuses a week before it filed for bankruptcy. Now, some workers are calling on lawmakers to create new rules that would require bankrupt companies backed by private-equity firms to provide compensation to their workers.

On Friday, more than a dozen workers met with lawmakers in New Jersey, where Toys R Us is based, to push for severance pay. Workers also called for new regulations on leveraged buyouts, as well as windfall taxes that would prevent private-equity firms from running a business into the ground and then walking away with huge sums of money.

In addition to meeting with lawmakers, employees are preparing to file a claim in bankruptcy court next week asking that they be fairly compensated, according to workers’ advocates at the Center for Popular Democracy.

“This is the story of a company — one of the most iconic in America — that was saddled with so much debt that it could not succeed,” Sen. Cory Booker (D-N.J.) said at a Friday event in the parking lot of a Toys R Us in Totowa, N.J. “And now the big guys are walking away and the workers are left with nothing.”

Much of Toys R Us’s troubles, employees say, date to a 2005 leveraged buyout in which its new owners — private-equity firms Kohlberg Kravis Roberts and Bain Capital, and real estate firm Vornado Realty Trust — loaded the company with more than $5 billion in debt. The company filed for bankruptcy last year, citing $7.9 billion in debt against $6.6 billion in assets, and announced in March that it would close all 800 of its U.S. stores.

The toy retailer said it will close about a fifth of it’s U.S. stores between February and April, as it tries to emerge from bankruptcy. (Reuters)

On Friday, Booker and other New Jersey lawmakers submitted a letter to the heads of those firms, urging them to “do right by the company’s workers.”

“I have always been proud to work at Toys R Us, but this is not Toys R Us — this is KKR and Bain Capital,” Tracy Auerbach, a store manager in Chandler, Ariz., who has been working at the company for 31  years, said during a news conference on Capitol Hill last month. “This is Wall Street greed. How can they walk away with millions and leave 33,000 workers with zero?”

[Analysts: Toys R Us might have survived if it did not have to deal with so much debt]

Last year, Toys R Us awarded executives $8 million in bonuses a week before filing for bankruptcy. A few months later, the company got approval from a bankruptcy judge to pay up to $21 million in additional bonuses to executives if they met certain performance goals. (That money was never awarded because the company’s performance fell short.) Chief executive Dave Brandon received $11.25 million in compensation last year.

[Toymakers say there is ‘widespread panic’ following Toys R Us bankruptcy]

Toys R Us is one of dozens of retailers backed by private equity to file for bankruptcy since last year, as heavy debt loads and increased competition take their toll on the industry. Others that have filed for bankruptcy following leveraged buyouts include Nine West, Claire’s, Gymboree, True Religion and Payless Shoe Source.

In the case of Toys R Us, financial filings show that the company was handing over $400 million a year to pay back its debt, often at the expense of turning a profit. Recently, it was burning through $50 million to $100 million in cash each month as it tried to dig its way out, according to court documents filed in March. The retailer also paid $470 million in advisory fees, interest and other payments to Bain Capital, KKR and Vornado since 2005. The firms did not respond to requests for comment.

“Something is seriously wrong with this type of economy,” Sen. Robert Menendez (D-N.J.) said at the Friday event. “How many employees at Bain are now worrying about how they’ll pay for day care? How many employees over at KKR don’t have the cash to fill up their gas tank to go out looking for jobs?”