Toys R Us was killed by a $5.3B debt load from its own leveraged buyout

In 2005, a consortium of KKR, Bain Capital and Vornado Realty Trust acquired Toys R Us in a $6.6 billion leveraged buyout, loading the toy retailer with $5.3 billion in debt. The deal was typical of the mid-2000s LBO boom: buy a company with borrowed money, use its cash flow to service the debt, and hope to sell or refinance later.

But Toys R Us was a retailer facing a structural shift — the rise of e-commerce, and Amazon in particular. The debt load left the company unable to invest in its stores, its website or its supply chain. Annual interest payments consumed hundreds of millions that could have funded a digital transformation. Competitors like Walmart and Target, unburdened by LBO debt, invested freely.

Toys R Us filed for Chapter 11 bankruptcy in September 2017 and liquidated its US operations in 2018, closing over 700 stores and eliminating 33,000 jobs. The case became the poster child for how leveraged buyouts can kill a company not by mismanagement but by debt — the company was solvent in operations but insolvent in capital structure.