Toys “R” Us Canada Acquired by Affiliate of Fairfax Financial Holdings Limited and Emerges from Creditor Protection

On May 31, 2018, an affiliate of Fairfax Financial Holdings Limited (Fairfax) acquired all of the share capital and business of Toys “R” Us (Canada) Ltd. Toys “R” Us (Canada) Ltee (Toys Canada) for a purchase price of CDN$300 million subject to certain working capital adjustments.  The share transaction, which was completed in connection with Toys Canada’s emergence from restructuring proceedings under the Companies’ Creditors Arrangement Act (the CCAA) and Chapter 11 of the U.S. Bankruptcy Code, has enabled Toys Canada to continue as a going concern without compromising creditor claims and preserved Toys Canada’s position as Canada’s leading toy and baby retailer.

Goodmans acted as Canadian restructuring counsel to Toys Canada in its cross-border restructuring proceedings. Toys Canada was the Canadian operating entity in the Toys “R” Us corporate group (the Company).  On September 19, 2017, Toys Canada commenced CCAA proceedings in response to liquidity and supply challenges affecting the global Toys “R” Us business.  The previous day, Toys “R” Us, Inc., certain of its U.S. subsidiaries and Toys Canada filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code.  

The plenary CCAA and Chapter 11 proceedings and the integrated nature of the Company’s financing arrangements necessitated significant cross-border cooperation in the restructuring proceedings.  The Canadian business of Toys Canada continued its strong performance and operated without significant disruption during the CCAA proceedings.  However, the Company’s efforts to complete a global going concern restructuring to address its overleveraged capital structure were hampered by the significant underperformance of its U.S. business.  As a result, in March 2018, the Company decided to commence an orderly wind-down and liquidation of its U.S. business while simultaneously pursuing a going concern sale of the Canadian business.

The Company’s sale process resulted in Fairfax and Toys “R” Us – Delaware, Inc. entering into a Share Purchase Agreement dated as of April 19, 2018, under which it was agreed that an affiliate of Fairfax would purchase all of the share capital of Toys Canada.  The transaction required approvals from both the U.S. bankruptcy court and the CCAA court, which approvals were received on April 25, 2018 and April 27, 2018, respectively.  On May 9, 2018, the Canadian court issued an order authorizing the termination of the CCAA proceedings upon completion of the Toys Canada transaction, which subsequently closed on May 31, 2018.  As a result of the completion of the transaction, Toys Canada has emerged from creditor protection under the ownership of a leading Canadian asset management firm with significant investments and experience in the Canadian retail sector.