Toys 'R Us' $1.3 billion term loan traded lightly when it broke in the secondary market at 100 1/4 last week, according to traders. Some were put off by the complexity of the deal, which is backed by $2.4 billion of real estate assets. One trader said he chose not to play in it because of its complexity. "You need to be a real estate expert to understand it," he said. "If you don't understand the collateral, there is a lot of risk in it."
Traders also complained it was not well priced at LIBOR plus 3% -- even though price talk was originally LIBOR plus 2 3/4%. The deal is designed to partially take out the $1.9 billion bridge loan put in place for the $6.6 billion buyout by Bain Capital, Kohlberg Kravis Roberts & Co. and Vornado Realty Trust (CIN, 10/31).
In October, Standard & Poor's lowered its corporate credit rating on Toys 'R Us to B- from B+ and the senior unsecured rating to CCC from B-. The downgrade reflects the debt burden of the company post merger. Total debt to EBITDA increased to 8.4 times for the 12 months ended Aug. 2, 2005 from 5.4 times for the 12 months ended May 3, 2005 because of the leveraged buyout, according to the ratings agency.
A spokeswoman for Vornado and KKR spokesman declined to comment. A spokeswoman for Bain Capital and Toys 'R Us officials did not return calls.