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Toys R Us owners set aside millions of dollars for laid-off workers after bankruptcy

FILE - This Jan. 24, 2018, file photo shows a person walking near the entrance to a Toys R Us store, in Wayne, N.J. Toys R Us is closing its last U.S. stores by Friday, June 29, the end of a chain known to generations of children and parents for its sprawling stores, brightly colored logo and Geoffrey the giraffe mascot. (AP Photo/Julio Cortez, File)

Thousands of Toys R Us workers who lost their jobs earlier this year may soon be receiving severance payments, setting a new precedent for private equity-backed companies that file for bankruptcy.

Bain Capital and Kohlberg Kravis Roberts -- two of the three firms that bought Toys R Us in a 2005 leveraged buyout and loaded it with billions of dollars in debt before liquidating the chain in June -- are setting aside millions of dollars in a fund to be distributed to retail workers, according to a person involved in the negotiations who spoke on the condition of anonymity. A third owner, Vornado Realty Trust, is not contributing to the fund, that person said.

Representatives for Bain Capital and KKR declined to comment on the fund or its size. Vornado didn’t respond to requests for comment. The Wall Street Journal reported Friday that they had set aside $20 million.

The workers are owed $75 million in severance pay, according to worker advocacy group Rise Up Retail. Prior to the bankruptcy, Toys R Us had guaranteed its workers two weeks of severance for their first year of service, and one week of pay for every two years on the job after that.

“This win at Toys R Us is part of a bigger movement of workers and families fighting back to hold Wall Street accountable for the investments that they make," said Carrie Gleason, campaign manager for Rise Up Retail. “[These firms] made an investment that resulted in a lot of harm for families and communities, and the responsible thing to do is step up and pay workers what they are owed."

‘How can they walk away with millions and leave workers with zero?’: Toys R Us workers say they deserve severance

It’s too early to tell, she said, how -- or when -- the funds would be distributed among workers. She added that Toys R Us workers will continue to fight for their full severance pay.

The group, she added, is pushing for state and federal legislation that would require bankrupt companies to make severance payments. Toys R Us workers have also been meeting with lawmakers to push for new regulations on leveraged buyouts, as well as windfall taxes that would prevent private-equity firms from loading companies with debt and profiting from their demise.

The workers' fund could have far-sweeping affects, particularly in the retail industry where leveraged buyouts -- and subsequent bankruptcies -- have grown increasingly commonplace. Toys R Us is one of dozens of private equity-backed retailers to file for bankruptcy since last year. Others that have filed for bankruptcy citing heavy debt loads include Nine West, Claire’s, Gymboree, True Religion and Payless Shoe Source.

Toys R Us to close all 800 of its U.S. stores

Toys R Us filed for bankruptcy last year, citing $7.9 billion in debt against $6.6 billion in assets, and announced in March that it would close all 800 of its U.S. stores.

Toys R Us awarded executives $8 million in bonuses a week before it filed for bankruptcy. A few months later, the company got approval from a bankruptcy judge to pay up to $21 million in additional bonuses to executives if they met certain performance goals. (That money was never awarded because the company’s performance fell short.) Chief executive Dave Brandon received $11.25 million in compensation last year.

Gleason said workers are also pushing other Toys R US creditors, including the hedge fund Solus Alternative Asset Management and investment firm Angelo Gordon, to contribute to the fund. A spokesman for Solus did not immediately respond and one for Angelo Gordon declined to comment.

“While we’re happy about this development, we believe the fund should be bigger because we’re talking about 33,000 workers,” said Madelyn Garcia, 50, who worked for Toys R Us for 30 years, most recently as a store manager in Boynton Beach, Fla. “When this type of liquidation happens, we want to make sure workers are protected, that there’s money set aside from them.”

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