Lawmakers Take Private Equity To Task Over Toys R Us Doom
Pointedly, the July 5 letter criticizes the leveraged-buyout structure that saddled the company with more debt than it could manage.
The private equity giants took over the company in a $7.5B leveraged buyout in 2005. The company had been paying interest of $400M on about $5B of debt every year for a decade. In the good years, that was almost half its operating profit, Bloomberg reports.
"Leveraged buyouts — such as those facilitated by your companies — often result in mass job loss, closure of profitable businesses and unnecessary financial burdens for local government," the members of Congress wrote in the letter. "Such buyouts harm communities, while investment managers walk away with significant gains."
The letter refers to 33,000 workers who lost their jobs, while Bain Capital, KKR and Vornado "extracted" more than $500M from Toys R Us during the period they owned the company.
The letter addresses Bain Capital co-Chairman Joshua Bekenstein, KKR co-chairmen Henry Kravis and George Roberts and Vornado Chairman and CEO Steven Roth, and ask the executives about Toys R Us' debt load, fees the firms collected from the toy chain and whether the firms plan to offer any severance to Toys R Us workers.
Before it closed, workers staged a sit-in protest at the company's store in Union, New Jersey. Many are demanding severance in the form of $15K for each of the 33,000 or so workers unemployed by the closure, CBS reports.
U.S. Sens. Cory Booker and Robert Menendez, both of New Jersey, and U.S. Rep. Bill Pascrell sent a letter in June to Bain Capital, KKR and Vornado urging severance pay for Toys R Us workers. Toys R Us was headquartered in New Jersey.
The more recent letter from members of Congress — including 18 U.S. representatives and Sen. Bernie Sanders — asked for a response by July 15. As an informal letter rather than anything official, however, the firms aren't obligated to answer.
For its part, KKR formulated a reply dated July 6, which said that Toys R Us' problems were the result of market forces, the Wall Street Journal reports. Specifically, the letter cited e-commerce retail and laid the decision to shut down Toys R Us squarely on the company's creditors, not KKR.
KKR also asserted that it did not profit from its interest in Toys R Us.
"Even accounting for fees received from Toys ‘R’ Us, we have lost many millions of dollars," the company said. "We believe we have found a path outside of the bankruptcy process to help those [former employees] who need it the most, and we are committed to supporting this."
Toys R Us, a retail brand whose roots date back to the 1950s, closed the last of its 735 stores nationwide at the end of June.