How private equity killed Toys R Us

In 2005, KKR and Bain Capital, along with the real estate firm Vornado, led a $6.6 billion leveraged buyout of Toys R Us. At its peak, Toys R Us was America's biggest toy store. But leveraged buyouts leave companies with a ton of debt. The business still made an operating profit, but Toys R Us suddenly owed about $400 million a year in interest payments alone. By 2007, interest was eating 97% of its operating profit.

They started cutting jobs. Less than a year after the buyout, they closed 75 stores and eliminated 3,000 positions. And they kept cutting. Workers were pushed to sign customers up for high-margin store credit cards and predatory "payment protection plans." Executives still got huge bonuses: $8.2 million in retention bonuses a week before the bankruptcy filing, and then court approval for up to $16 million more.

The new owners also went after the real estate. Toys R Us owned many of its stores, and the owners looked at sale-and-leaseback deals, where the stores get sold and Toys R Us pays rent to lease back buildings it used to own. The whole time, the owners collected fees: $183 million in advisory fees, and more than $470 million in fees and interest altogether.

Toys R Us filed for bankruptcy in September 2017. By 2018, the store that was such a big part of my generation's childhood was closing every US location. On top of all of that, more than 33,000 employees lost their jobs without a dime of the $75 million in severance they were owed. After months of protests, KKR and Bain created a $20 million fund for former workers. That's a win for workers, but it's still far less than they were actually owed.