By Carl Manna, Dumont Council President  

Recent years have not been kind to traditional retailers. When Toys ‘R’ Us closed their doors for the last time in June, we lost one of our most enduring and trusted brands. Working families across the nation felt the impact of 735 stores ceasing operations and liquidating their assets.

Retail is the largest segment of the American workforce and as a 40-year resident of Bergen County and frequent customer of its mainly retail establishments, I’ve seen firsthand the critical role that members of our retail workforce play in our local economy. Northern New Jersey, especially Paramus, is one of the largest shopping destinations in the country, generating over $5 billion in annual retail sales. With the challenges of e-commerce and northern New Jersey’s economy dependent on remaining a top retail destination, we will continually adapt but the recent trend of retail creditors pushing stores like Toys “R” Us to quickly fire workers and liquidate assets rather than let the retailers preserve jobs and restructure is troubling.  

The real tragedy of the demise of Toys ‘R’ Us lies in the negotiations that surrounded the final weeks of the stores’ operations. The store’s private equity firm owners KKR, Bain Capital and Vornado had almost clinched a deal to keep the stores running when their efforts were cut short by creditors who decided that liquidating all assets would provide the best return on their investment.  

The pivotal role that creditors play in the bankruptcy process is little known outside of the world of finance. Solus Alternative Asset Management, a New York hedge fund, managed to convince four other Toys ‘R’ Us debtholders that the company would be more valuable to them dead than it would be alive. This decision marked the deathblow that halted all plans of restructuring the company. 

A recent Wall Street Journal article written by Gretchen Morgenson and Lillian Rizzo sheds light on the creditor business model behind Toys ‘R’ Us’s untimely bankruptcy. “Solus has said that buying into troubled companies that are likely to be liquidated generates higher and more reliable returns,” writes Morgenson and Lillian. It doesn’t take much to realize that Solus clearly bought into Toys ‘R’ Us with the full understanding that they stood to profit more if the company closed. Hedge funds like Solus run their businesses at the expense of everyday workers, and their role in the collapse of such an important American brand should be recognized far and wide.  

Findings from a HSBS research report are also included in the Wall Street Journal article and reveal “Solus bet against Toys ‘R’ Us debt by placing a $25 million short position in another debt security, possibly in an effort to hedge its debt holdings.” This type of financial trickery is shortsighted and bad for our greater economy. The article concludes with a telling passage: “The liquidation strategy appears to be paying off for Solus. Court records and market data suggest it will receive more than it paid for its stake.”  

The proceeding surrounding the last days of Toys ‘R’ Us should be a wake-up call to those who blame the private equity firms that took a big hit by the decision to liquate. Further examination clearly points to the distressed-debt creditors who walked out of the situation with the profit they intended on making when they initially invested in the troubled company. To add insult to injury, they’ve refused to contribute to an employee fund established by KKR and Bain Capital.  Solus and the other creditors may have profited from their investment, but that profit came at the expense of the American worker and the death of an iconic brand. They should at least do the honorable thing and join the efforts underway to help those families who are paying the price.