Following weeks of mixed predictions and suppositions, Toys “R” Us has officially filed for bankruptcy protection. The retailer, along with certain of its US and Canadian subsidiaries, voluntarily filed for relief under Chapter 11 of the Bankruptcy Code in the US Bankruptcy Court for the Eastern District of Virginia yesterday.

Moving into the holiday season, the company’s 1,600 Toys “R” Us and Babies “R” Us stores around the world will continue to operate, along with the company’s e-commerce sites. Loyalty programs–including Rewards “R” Us, Geoffrey’s Birthday List and Babies “R” Us Registry—are also expected to continue as normal.

In a statement, TRU said it would use these court-supervised proceedings to restructure its outstanding debt and establish a sustainable capital structure in order to invest in long-term growth.

According to chairman and CEO Dave Brandon, the company plans to work with investors, debt holders and other creditors to restructure the company’s US$5.2 billion in long-term debt, due between 2018 and 2021.

The New Jersey-based company’s Canadian subsidiary plans to seek protection in parallel proceedings under the Companies’ Creditors Arrangement Act (CCAA). TRU operations outside of the US and Canada, including about 255 licensed stores and joint-venture partnerships in Asia, are separate entities and were not included in the proceedings.

TRU has received a commitment for more than US$3 billion in debtor-in-possession (DIP) financing from a number of lenders, including a JPMorgan-led bank syndicate. Subject to court approval, the DIP financing will support ongoing operations during the court-supervised process.

In conjunction with the Chapter 11 process in the US, TRU has also filed a number of customary motions that would support operations during the restructuring process. These motions include authority to continue payment of employee wages and benefits, honor customer programs and pay vendors and suppliers for all goods provided on or after the filing date.

Kirkland & Ellis LLP is serving as principal legal counsel to Toys “R” Us, while Alvarez & Marsal is serving as restructuring advisor and Lazard is serving as financial advisor.

Venture capital firms KKR & Co., Bain Capital and Vornado Realty Trust took over the retailer 12 years ago in a US$6.6-billion leveraged buyout. Driven by former CEO Gerald Storch’s strategy of securing more exclusives, integrating Babies “R” Us and FAO Schwarz into regular TRU stores, and placing more emphasis on the development of private-label products, TRU’s market share temporarily increased but these offerings were not enough to compete with heavyweight e-tailers like Amazon.

In 2014, TRU launched its transformation strategy with a focus on a strengthened omni-channel fulfillment model, optimized e-commerce business, international growth and improved customer experience both in-store and online. Fiscal 2016 saw TRU’s net sales dip 2.2% to US$11.5 billion. In Q1 2017, consolidated net sales fell by US$113 million to US$2.2 billion. Moving forward, the retailer is looking to drive growth with a revamped US$100-million e-commerce push.

The toy industry itself, however, has seen significant growth. A recent report from The NPD Group found that global toy sales were up 3% in the first half of 2017. The market research firm estimates the industry will grow by approximately 4% for the full year.

Following reports of a potential TRU finance restructuring earlier this month, US toy stocks from the likes of Hasbro, Mattel and Spin Master have been in a state of flux. In a release, BMO Capital Markets Toys & Leisure analyst Gerrick Johnson said the uncertainty surrounding the situation had caused many toycos to pause in shipping new product to the retailer. Following TRU’s announcement, Johnson predicts suppliers will resume shipping. According to BMO, Toys “R” Us accounts for 9% of sales at Hasbro, 11% at Mattel, 12% at JAKKS Pacific and 15% at Spin Master. 

With the holidays looming, Johnson believes TRU will successfully restructure and that the shopping season will experience little disruption. Considering TRU makes 40% of its annual sales in the six weeks before December 25, the time period is a crucial one for the retailer.