$20 Million severance fund started for Toys R Us workers
A months-long campaign to get severance for more than 30,000 former Toys R Us workers is partially paying off, with two private-equity firms setting aside $20 million for a financial assistance fund.
Bain Capital and KKR -- two of the three companies that took over the retailer in a $6.6 billion leveraged buyout in 2005 -- on Tuesday said they will each contribute $10 million to a financial assistance fund for employees laid off without severance when the chain closed 735 U.S. stores earlier this year.
The draft payment schedule would provide at least $200 those eligible and as much as $12,800 at the upper end.
"We are glad that KKR and Bain have decided to create this fund to help thousands of families in time for the holidays," said Carrie Gleason, Organization United for Respect's campaign manager of Rise Up Retail, a worker advocacy group.
"The fund needs to grow to make these families whole," added Gleason, a reference to the fund being $55 million short of what advocates say would be needed to cover severance payments to employees under policies in use for decades at the iconic retailer, which declared bankruptcy in September 2017.
"I wish we could get more from the other companies for our families," Cheryl Claude, who worked for Toys R Us for 33 years, the last 28 in Woodbridge, New Jersey, told CBS MoneyWatch. "This is a start. We're going to keep pushing."
The third firm that participated in the takeover, Vornado Realty Trust, hasn't contributed. Five other creditors who pushed for the toy seller's liquidation instead of reorganization so far have also not contributed to the fund. Angelo Gordon & Co., Franklin Mutual Advisors and Highland Capital all either declined or did not return requests for comment.
One creditor, Oaktree Capital Management, said it did not participate in the debtor-in-possession term loan financing to Toys R Us at the time the retailer filed for bankruptcy, and as a result, was not part of the negotiations that led to the company's liquidation.
"While we very much sympathize with the employees who lost their jobs as a result of the Toys R Us liquidation, it wouldn't be appropriate for our funds, which are owned by our public and private pension, union and other clients, to compensate for losses that our funds and our clients had nothing to do with creating," a spokesperson for Oaktree emailed.
Solus Alternative Asset Management, however, fired back.
"Given their responsibility for the Toys R Us liquidation after saddling the company with crushing debt, as well as their decision to terminate the original severance plan for employees, we applaud the private equity sponsors' assistance to former workers," the company emailed.
"Lenders are now focused on putting the brand to use in a way that would create jobs as well as exploring additional opportunities to support former employees," the New York hedge fund added.
A company called Geoffrey LLC was formed last month after the funds that took control of the retailer's assets reversed plans on auctioning off its intellectual property, opting to try to resuscitate the brand instead. The effort had Geoffrey's Toy Box setting up shop this month in about 600 Kroger stores in nearly 30 states.
Solus and Angelo Gordon are trying to raise capital to revive Toys R Us as a stand-alone outfit, according to Bloomberg News.
"We don't understand why Solus and Angelo Gordon would further ruin Geoffrey's memory by refusing to contribute to a fund that would support the families of the hard working employees hurt by their actions in the bankruptcy," said Gleason.
In a joint statement, KKR and Bain Capital sought to set themselves apart from other firms involved in the big-box chain's demise.
"After being a part of the community and and supporting Toys R Us for 12 years, and advocating for a very different outcome than what occurred, we are establishing this fund in response to an extraordinary set of circumstances for both of our firms," KKR and Bain Capital said in an emailed statement.
"The confluence of the disruption in retail, the push by the company's secured creditors to liquidate the company's U.S. operations and the fact that we have never experienced something like this in the history of either firm led us to try and find a way to provide some financial relief for former employees," the financial firms stated. "We hope others will consider joining and contributing."
A campaign supported by the advocacy groups Center for Popular Democracy and Gleason's group applauded the move in a news release as "the first important step in ensuring that Toys R Us employees who lost their livelihood receive the support they were promised."
KKR and Bain Capital said they appointed Kenneth Feinberg, an expert on administering compensation funds, and his colleague Camille Biros to oversee distributions from the fund, a process expected to begin Dec. 15 and be complete by the end of April.
Those who worked at Toys R Us for at least a year are eligible.
