From Bloomberg

Toys “R” Us Inc., the retailer that filed for bankruptcy in North America, has been exploring options for its growing Asian business, including a potential initial public offering, people with knowledge of the matter said.

 The U.S. chain and its local joint venture partner, the billionaire Fung brothers, have been speaking with investment banks to study the feasibility of listing the Asian business on the Hong Kong bourse, according to the people. A deal could value the unit at as much as $2 billion, said the people, who asked not to be identified because the information is private.

Toys “R” Us and some of its North American subsidiaries filed for bankruptcy last month, though its Asian unit wasn’t included in the proceedings. Deliberations are at an early stage, and Toys “R” Us hasn’t decided which path to pursue, the people said. Toys “R” Us owns about 85 percent of the Asian venture, while Fung Group — the private holding company of Hong Kong businessmen Victor and William Fung — has the remainder.

 Toys “R” Us’s largest term loan jumped 4.5 points to trade at 62.5 cents on the dollar Tuesday, buoyed by the deal discussions.
 The ongoing bankruptcy could make a listing more complicated and harder to market to investors. Still, an IPO of the Asian unit would allow Toys “R” Us’s private equity owners to recoup some of their investment by selling shares in a business that’s still doing well.

High-End Toys

“Throughout Asia, income levels are rising and the consumer is trading up to more higher-end toys,” Thomas Jastrzab, a Hong Kong-based retail analyst at Bloomberg Intelligence, said by phone Tuesday. “In Asia, you should see faster growth in the toy market compared to Western Europe and North America.”

Toys “R” Us dominates the $20.7 billion Asia Pacific market for traditional toys and games, according to research firm Euromonitor International. It had a 20 percent share of last year’s sales of dolls, action figures, puzzles and other products that lack a video-game component. Its closest competitor in the region had a 1.4 percent share, the Euromonitor data show.

Growth in Asia Pacific helped offset weaker sales in the U.S. and Europe in the quarter ended April 29, Toys “R” Us said in June. Earlier this year, the company combined its Japanese business with a joint venture running stores in greater China and Southeast Asia. The merged business operates more than 400 outlets, according to its website.

Toys “R” Us has about 1,600 stores and e-commerce sites around the world, and the Wayne, New Jersey-based company has vowed to keep them open during bankruptcy proceedings.

The toy retailer’s owners had initially discussed the feasibility of listing the Asian business as early as 2018, but some parties view that timeline as too ambitious because of the complexities related to the bankruptcy proceedings in the U.S., the people said.

Representatives for Toys “R” Us and its owners, KKR & Co., Bain Capital and Vornado Realty Trust, declined to comment. A spokeswoman for Fung Group also declined to comment.

A listing could provide a boost for Hong Kong, where fundraising from first-time share sales this year has fallen 42 percent from the same period in 2016, according to data compiled by Bloomberg. The city’s market for IPOs is heading for its worst year since 2012, as megadeals such as an offering from state-owned China Tower Corp. are pushed to next year.

KKR, Bain and Vornado acquired Toys “R” Us in a $7.5 billion leveraged buyout in 2005. They stand to have their investment erased as the retailer seeks bankruptcy protection after competition from online rivals and price wars made it difficult for the company to service its debt. KKR and Vornado had previously written their investments in the company down to zero.

Toys “R” Us Asia was set up in 1986. Local partner Fung Group is also the biggest shareholder in Li & Fung Ltd., a supplier to Wal-Mart Stores Inc. and other U.S. retailers.


From Seattle Times

After flirting with a public stock offering and trying to catch the eye of many potential buyers, the 46-store “sexual wellness” retailer Peekay Boutiques of Auburn has filed for Chapter 11 protection to clear the way for a sale.

The chain, founded in 1982 by Phyliss Heppenstall as a family business, has been owned since 2012 by private equity investors who borrowed heavily to acquire several regional retailers in hopes of building a national franchise. It does business under four names: Christals, Lovers, ConRev and A Touch of Romance.

The company’s debts to its primary lenders, originally $38.2 million, have since grown through unpaid interest and fees to nearly $52 million, according to the Chapter 11 filing by Peekay Acquisition in bankruptcy court in Delaware.

The owners of the various retailers that were acquired also provided seller financing totalling $12.7 million, which has grown to $19 million due to unpaid interest.

Peekay filed papers for an initial public offering of stock in 2015, showing it was losing money because payments on the debt were larger than its profits from selling sex toys, lingerie and other products. It abandoned that IPO plan the following year and has tried in vain to find a buyer or restructure its debts outside of bankruptcy. The last straw apparently was a second effort at consummating a deal with one unidentified suitor, which was dropped last month.

According to the documents, the largest lenders have agreed to bid up to $30 million (as a credit from what they are owed) to buy the chain’s assets unless a higher offer materializes.

A declaration by chief restructuring officer Albert Altro says the goal is “to maintain the business as a going concern, thereby perserving hundreds of jobs.” In a press release, Peekay CEO Lisa Berman said the company also intends to implement “an aggressive online e-commerce strategy to tap into the growing number of customers who purchase their sexual wellness products through the internet.”


From Courant

spite an offer Monday from Hartford’s largest bond insurer to delay payments on outstanding debt, Mayor Luke Bronin said he would resist any plan that financially burdens the city for decades to come.

Assured Guaranty has suggested Bronin refinance Hartford’s debt in a bid to avoid bankruptcy. The company, which insures $311 million in city bonds, suggested spreading Hartford’s payments farther into the future. The mayor said the city has “a structural problem that requires a structural fix.”

“We are focused on addressing this fiscal challenge in a long-term, sustainable way,” Bronin said, “and that means addressing it in a way that does not leave a future mayor or future generations with the same challenge to deal with.”

Assured Guaranty’s proposal would reduce immediate contributions, but ultimately drive up the amount of interest Hartford would pay in future years.

Bronin and lawyers with Greenberg Traurig, a firm hired by the city to explore bankruptcy, asked bondholders and insurers to participate in a conference call Monday. Hartford officials, faced with $545 million in outstanding general obligation debt, shed light on the city’s financial situation as a “first step” in a “constructive dialogue about restructuring alternatives.”

The mayor declined to discuss how city bonds might be restructured, or any requests he made to bondholders and insurers, saying the talks were ongoing.

Bronin said Monday that he was “prepared to have discussions with any stakeholder who wants to be part of a collaborative, constructive discussion,” but didn’t take a position on Assured’s request.

Debt payments in Hartford, which faces a $65 million deficit, are set to rise by tens of millions of dollars in the coming years. By 2021, the city’s annual debt service is expected to top $60 million — about 20 percent of its non-education expenditures, said Bronin, who has called the figure “unmanageable.”

Assured Guaranty’s plan would keep Hartford’s annual payments around $40 million for the next 15 years.

The company has warned that bankruptcy would be a black eye to the city and state. If Hartford were to default or otherwise fail to make its debt payments, Assured would be responsible for making those missed payments.

Hartford leaders are preparing to confront cash flow issues in November and December, with shortfalls of $7 million and $39.2 million, respectively.

The city, which borrowed millions last spring to help pay bills, owes $3.8 million this month and $26.9 million in October.

Bronin sent a letter to Gov. Dannel P. Malloy and legislators this month threatening to pursue bankruptcy if Hartford didn’t get its needed state aid by early November. He has asked for at least $40 million more from the state this year.

Democrats had set aside $40 million to $45 million in their spending plan, but a Republican budget was approved by lawmakers instead.

The Republicans’ proposal only included about $7 million in additional assistance for Hartford. Malloy has promised to veto that plan.

It is unclear when another budget agreement might be reached. The fiscal year began July 1.


From Reuters

HONG KONG, Sept 25 (Reuters) – Oaktree Capital Group LLC sees opportunities to invest “more aggressively” in Chinese and Indian distressed debt as the legal and regulatory systems of the countries develop, Chief Executive Jay Wintrob said on Monday.

“These are countries where the legal system, the bankruptcy code, the sanctimony of the rule of law are still under development, in a very positive way, especially in China,” Wintrob said at a news conference.

“As those institutions develop and the predictability of the outcomes, their willingness to uphold the priority of creditors vis-à-vis one another, you will see more opportunities to invest, to invest more aggressively.”

The company has invested in Chinese non-performing loans (NPLs), Japanese equities as well as Australian private equity and distressed debt, and was looking to make inroads in India.

The Asia-Pacific has been a bigger market for Oaktree to raise money from than for the Los Angeles-based firm to invest in, but that could change as more opportunities emerge.

Oaktree, the world’s biggest distressed-debt investor, has invested in four Chinese non-performing loan pools and has a partnership in India, Wintrob said.

The two countries have seen a surge in bad debt and non-performing loans, but those assets are still for the most part with banks, which may be prodded to clean their balance sheets and create buying opportunities for Oaktree.

“There’s certainly plenty of supply (in India and China), but the vast majority of supply is not available for sale. So it’s really a matter of government policy, regulator policy, rating agency policy” to prod banks into offloading NPLs, Wintrob said.

Turning to South Korea, Wintrob said its markets have taken growing tensions between North Korea and the United States in stride, but added they could quickly reverse if conditions worsen.

“How is it that there are so many obvious things to potentially be concerned about in Korea and the equity markets, the credit markets, interest rate spreads, default rates, transaction volumes show no sign of abating whatsoever,” he added.

“It doesn’t seem like people are too worried about it, which tells me that if there’s a problem you’ll have a big reaction, big reaction because no one is prepared for it.”


From Irish News

Britain’s financial watchdog has refused to publish a leaked report into the scandal at Royal Bank of Scotland’s controversial restructuring unit, despite demands for its release by an influential committee of MPs.

Financial Conduct Authority (FCA) chief executive Andrew Bailey pushed back after receiving a letter last week from Tory MP and Treasury Committee chair Nicky Morgan, who raised concerns about a leak to the BBC last month and called for the report to be published in full.

But Mr Bailey said that publishing the skilled persons or Section 166 review – which collects insight about a firm’s activities from third parties – would mean revealing confidential information about the individuals who contributed to it.

“However, I recognise that the public interest justifies greater disclosure of material in the report relevant to the complaints of former customers. It is therefore our intention to publish a detailed summary,” he said.

Mr Bailey said the FCA has asked external lawyers to ensure the summary is a “fair and balanced” account of the report’s findings, adding that the report is nearly ready for publication.

The FCA also has yet to decide whether the case requires a formal investigation.

Mr Bailey’s offer falls short of Ms Morgan’s demands, which echoed calls by the SME Alliance and lawyers suing RBS on behalf of businesses affected by the scandal – which allegedly saw RBS’ turnaround unit GRG intentionally push businesses towards failure in hopes of picking up their assets on the cheap.

The study was commissioned by the regulator almost four years ago as part of its inquiry into its Global Restructuring Group (GRG) and while the FCA pledged last November to publish a “full account” from the skilled persons’ report, it has so far refused to make it public.

Commenting on Mr Bailey’s refusal, Ms Morgan said: “The Committee recognises that such reports are not intended for publication, and should in normal circumstances remain confidential.

“But the report is now in the hands of an unknown number of third parties. If closure is ever to be brought to this long-running issue, Parliament and the public need the account ordered by the regulator.

“And so we consider that the public interest in publication in this specific case is overwhelming.”

Ms Morgan said the Treasury Committee is due to see the FCA in October, when the issue is likely to be raised.

The BBC reported late last month that the 361-page report showed 92% of “viable” firms seen by GRG experienced “inappropriate action”, such as interest charges being raised or unnecessary fees imposed.

It also showed that only 10% of business customers put into GRG ever returned to the main bank.

Market-sensitive details of RBS’s compensation scheme for former GRG customers were also leaked in November 2016, but the FCA has yet to reveal the findings of their internal investigation.

But Mr Bailey hit back at claims that the FCA had a reputation for leaking information.

“The effective management of sensitive information is something I take very seriously. I am therefore, like you, concerned at the claim by the BBC that it has seen a copy of the report.

“I can confirm that we have initiated a leak enquiry and I will write again with the findings once it has completed,” he said.

Mr Bailey added: “I also note your point that the FCA has been associated with past leaks.

We have no evidence of leaking from the FCA, but it is very important that if anyone has such evidence, they provide it to us so we can act.”


From Reuters

Teen fashion retailer rue21 inc was cleared to exit bankruptcy buoyed by a court ruling that knocked down an attempt by unsecured creditors to preserve claims against the company’s private equity owner.

Judge Gregory Taddonio of the Bankruptcy Court in Pittsburgh took rue21’s official committee of unsecured creditors to task on Friday for backing the company’s plan to exit bankruptcy while challenging the release of Apax Partners LLP from liability.


From Investors

isney (DIS)-ABC Television Group is said to be planning to cut about 10% of its annual budget, a move that could include up to 300 layoffs across several Disney-owned channels by the end of September, according to the Wall Street Journal.

ABC, ABC Studios, ABC News and local TV stations will reportedly take the biggest hit, and Disney Channel and Freeform’s staff will also be impacted. Variety sources said that no head count has been formally determined yet, and that Disney’s aim with the restructuring is to free up more resources for content development.

Disney’s rivals, both in the traditional entertainment space and burgeoning streaming arena, are pumping resources into original and licensed content.

Netflix‘s (NFLX) content chief Ted Sarandos recently told Variety that the company is likely to up its content spending to $7 billion in 2018 from $6 billion this year. The streaming heavyweight recently lured away ABC’s hitmaker, Shonda Rhimes, the creator of “Scandal” and “Grey’s Anatomy.”

Amazon (AMZN) Studios devoted an estimated $4.5 billion to content. Even Apple (AAPL) has put some money on the table, and is reportedly set to spend $1 billion on originals.



From Reuters

SAO PAULO, Aug 29 (Reuters) – A Rio de Janeiro court decided that billions of reais in debt the telecom company Oi SA has with Brazil’s regulator Anatel should be included in the firm’s in-court debt restructuring, Oi said on Tuesday.

The decision, if confirmed, is a blow to Brazil’s prosecutor’s office, which wanted Oi’s debt with the federal telecommunications watchdog to be treated separately and with a different status.

Representatives for the Rio appeals court, which according to Oi confirmed a ruling from a previous court, could not be immediately reached for comment or confirmation.

In an unrelated statement, the company said the Rio de Janeiro court authorized payment to small creditors before the largest ones, as proposed by the phone carrier in May.

Oi’s bankruptcy protection case, opened last year, is the largest ever in Brazil with a total debt above 60 billion reais ($18.96 billion) and around 55,000 creditors.


From Bloomberg

Investors who’ve ridden a monster rally in the riskiest corporate bonds over the past year are now left with slim pickings.

The number of emerging-market securities paying yields more than 10 percentage points above Treasuries is the lowest in a decade as surging demand pushes up prices, according to data compiled by Bloomberg and JPMorgan Chase & Co. Just last year, the average payout on company debt from Brazil, Ukraine and Iraq all reached so-called distressed levels. But rallies in the three countries have now pushed yields well below that threshold.

On one hand, the scarcity of distressed credits is reflective of the huge gains in the riskiest bonds over the past year — JPMorgan says emerging-market securities with the lowest credit scores returned an average of 26 percent, seven times as much as investment-grade notes. But the phenomenon also raises red flags for investors who say it shows complacency among bond buyers taking on enormous risks because they’re desperate for high yields.

 “There is too much money coming to emerging markets, so leverage is increasing and investors are piling on certain trades of dubious quality,” said Diego Ferro, the co-chief investment officer at Greylock Capital Management, which specializes in undervalued, distressed and high-yield assets. “Not all of them are poor quality, but almost all of them are well bid.”Only 26 emerging-market corporate issuers have an average yield of 10 percent or higher versus 60 issuers a year ago, Bloomberg data show. The average yield on junk-rated corporate debt from developing-nation issuers has fallen almost a full percentage point from mid-November to about 6.43 percent, according to JPMorgan data.

To be sure, some of the reduction in the availability of distressed credits is due to reduced political risk in countries such as Brazil, Russia and Ukraine, as well as a slew of defaults in 2016 that took out some of the highest-yielding bonds. And companies such as PT Indika Energy, Vedanta Ltd. and Digicel Group Ltd. left the distressed camp after refinancing shorter-term maturities to shore up their finances.

But for investors dedicated to the highest-yielding debt, fewer options means there’s growing risk they’ll snatch up credits with less upside than a year ago.

“There are very few names that pay double-digit yields anymore,” Steve Drew, the head of emerging-market credit at Janus Henderson, which oversees $331 billion in assets, said from London. “We have a scarcity of assets that will pay you what is needed to match the liabilities that are out there.”


From Reuters

SAO PAULO, July 05 (Fitch) The severe recession, corruption scandals and a difficult external economic environment have simultaneously challenged Brazilian bank credit quality and spurred a distressed debt market, according to Fitch Ratings.

“Brazilian banks have remained conservative, with limited risk appetite and restrained growth prospects. Even government owned banks, with outstanding loans that grew by 83 percent versus 22 percent for private bank peers between 2011 and 2014, decided to decelerate loan growth and reviewed their underwriting standards,” said Claudio Gallina, Senior Director. “However, the distressed loans market is gaining traction as in Portugal, Greece and other economies that have faced severe economic turbulence.” Domestically, the bulk of the impaired loans have already been written off from the banks’ balance sheets.

Fitch estimates that total outstanding distressed loans in Brazil are around BRL500 billion, including BRL122 billion of non-performing loans that are still registered on the banks’ balance sheet. Both local international banks are entering the Brazilian market. For the lenders, benefits include short-term cash flow generation, reduction of tenor mismatches between assets and liabilities, and favorable tax treatments. For buyers, pricing and loss recovery prospects are the determining factors and depend on the type of loans, tenors, interest rates and guarantees. Nevertheless, on average, distressed loans have been sold at around three to four percent of their face value. The average profitability of distressed debt investing is around 30 percent in Brazil, a solid return considering it involves a collection service fee and consumes very little capital. Foreign banks have been increasingly interested in Brazilian distressed loans, especially the ones originated in the retail / residential mortgage portfolios, given the strong potential for recovery due to the loan guarantees.

The acquisition of Brazilian bank non-operating assets is another growing market. The bulk of transactions are foreclosed real estate owned by banks following the recovery of the collateral backing residential mortgage loans. Banks normally aim to reduce their foreclosed assets, given their high capital consumption, as well as the relatively high administrative and maintenance costs. While local players are actively managing distressed loans, international players are encountering challenges specific to Brazil with both distressed loans and non-operating assets.

Complex contract structures, local characteristics of ownership and registration of guarantees, cumbersome notary procedures, and compliance issues are among the main difficulties. Executing partnerships with local players is a common, though still new, solution. Contact: Claudio Gallina Senior Director +55-11-4504-2216 Fitch Ratings Brasil Ltda. Alameda Santos, 700 – 7th floor, Sao Paulo, Brazil. Jean Lopes Director +55 – 21 – 4503-2617 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email:

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