KKR & Co. and Bain Capital have created a financial assistance fund for former Toys “R” Us employees who lost their jobs in the U.S. after their leveraged buyout of the company resulted in bankruptcy.
KKR and Bain announced Tuesday that they each committed $10 million to the fund, saying the pool has the “flexibility” for contributions from other investors. The fund will be administered by Kenneth Feinberg and Camille Biros, who recently oversaw compensation pools set up by various Catholic Dioceses to resolve claims of sexual abuse by clergy.
Toys “R” Us filed for bankruptcy protection in September 2017, twelve years after KKR and Bain purchased the company in a $6.6 billion buyout that saddled it with debt. This year, the Wayne, New Jersey-based retailer announced it was liquidating all 735 of its U.S. stores as it lacked the financial support needed to stay in business.
“KKR and Bain Capital's creation of this fund will bring real support to the thousands of dedicated Toys “R” Us employees who lost their jobs,” Tracy Forbes, a former manager at the company’s store in Chandler, Arizona, said the statement. “We hope other firms will follow their lead and contribute.”
In the statement, the private equity firms blamed the job losses on the “severe disruption in the retail industry” and the company’s liquidation. KKR and Bain said they had advocated for a “very different outcome” but could not overcome the industry disruption and push by the retailer’s secured debt holders to liquidate its U.S. operations.
The private equity firms financed their 2005 buyout of Toys “R” Us with $4.4 billion of debt, according to a regulatory filing. The retailer’s going-out-of-business sales began March 23, its website shows.
[II Deep Dive: The Most Aggressive Buyout Firms Taking Debt-Financed Dividends]
Distributions from the financial assistance fund will be based on employee data such as tenure, earnings history, hours worked, and input from former Toys “R” Us staff. To be eligible, an employee’s annual income must not exceed $110,000 in annual income, according to the statement.
“In order to maximize the impact of available funds, key eligibility requirements and payment parameters had to be instituted,” Feinberg said in the statement.
All future announcements relating to the financial assistance pool will be made by Feinberg and Biros, whose experience as administrators includes oversight for the 9/11 Fund, BP Oil Spill Fund, and OneFund Boston. They have begun seeking feedback on the terms of the financial relief for former Toys “R” Us employees.
“We are now disseminating a draft of the protocol outlining the terms and conditions of eligibility so we can gauge employee reaction and comment,” Feinberg said.