Bankruptcy’s Ripple Effect

We often warn that one business filing for bankruptcy can spark a chain reaction. We are seeing this bear out in the Toys “R” Us bankruptcy. The entire toy industry is in a tight spot because of the retailer’s decision to file for bankruptcy.

According to the Washington Post, “Toys “R” Us owes $7.5 billion to a group that includes virtually every major toymaker in the country: Mattel (owed $136 million), Hasbro ($59 million), Spin Master ($33 million), Lego ($32 million), Radio Flyer ($12 million), Crayola ($2.6 million).”

These and other toymakers must now decide what their relationship with the last “big box” toy store will be like going forward. Some of the bigger companies are reducing the orders they will ship to Toys “R” Us or asking for cash on delivery. Others are optimistic that a restructuring will make the company stronger than ever and help it compete in the digital era. Some smaller companies have chosen to cut ties with the retailer. And everyone is looking ahead to the holiday season, when Toys “R” Us takes in 40% of its yearly profits.

What Toys “R” Us’s suppliers decide to do will have a huge impact on the company’s ability to make it through the Chapter 11 process successfully. If the suppliers ship less, or stop doing special products for the company, and then because of that Toys “R” Us has a bad holiday season, that is going to ripple back to the supplier. Each business is truly part of a chain that is only as strong as its weakest link.

Our firm helps all sorts of companies make difficult decisions about what to do when a supplier or customer’s financial difficulties are impacting their own balance sheet. Because corporate workouts have been one of our specialties for so long, we have seen it all. There is rarely a business situation that we have not helped a client deal with before. This allows us to give our clients legal advice that is informed by the real world, instead of a solution that will work “in theory.”

We work with our business clients on both short term and long term solutions to their problems because we understand that business is cyclical. Problems need fixed today, but if you don’t address the underlying causes of the problem, you are going to be dealing with the same issues in a few months.

If you are looking for an attorney to help you deal with the ripple effects of a bankruptcy in your industry, we are ready to help.