Not wanting to be outdone by NCIX, Toys-R-Us steps up
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Exploring An Abandoned Toys “R” Us
If someone asked me to make a list of things I didn’t expect to ever hear again, the question “Do you want to go to a Toys “R” Us?” would be pretty near the top spot. …
A friend of mine recently invited me to join him on a trip to the now defunct toy store. His wife’s company purchased one of the buildings for its ideal location near a main highway, and before the scrappers came through to clean everything out, he thought I might like a chance to see what was left. Apparently his wife reported there was still “Computers and stuff” still in the building.
While the tech we found throughout the store was interesting, what we found here was actually quite disturbing. This room contained several boxes full of personal information about employees at this particular Toys “R” Us location, down to their medical history and tax forms. As soon as we entered the room, we found a photocopy of one woman’s drivers license and Social Security card laying on the table. The amount of personal information left behind for anyone to find was really staggering.
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@El_Heffe As has been previously noted, when the company goes outright bust, there's nothing left to sue for violating privacy laws. That's (one reason of many) why uncontrolled bankruptcies are bad.
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There oughta be some sort of cybernegligence law
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Toys R Us is one of the few big companies to die in recent years where I've actually thought it was a shame that it's happened.
Going there as a kid was one of my favourite things.
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@dkf Couldn't you sue the the new owner of (in this case) the building? They are getting the information (or at least a physical copy of it) so it kinda makes sense. And shredding some papers is not that expensive.
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@anonymous234 said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
@dkf Couldn't you sue the the new owner of (in this case) the building? They are getting the information (or at least a physical copy of it) so it kinda makes sense.
But they’re not the ones who were negligent by leaving it lying around. (Though they could be if they keep it lying around, of course.)
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@El_Heffe said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
As soon as we entered the room, we found a photocopy of one woman’s drivers license and Social Security card laying on the table. The amount of personal information left behind for anyone to find was really staggering.
I'm sure the finance conglomerate of rich old white dudes who used questionable business practices to dump hundreds of millions of dollars debt on Toys'R'Us are staggered, and I'm sure they will be brought to justice.
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@bb36e said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
There oughta be some sort of cybernegligence law
See above.
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@Lorne-Kates said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
I'm sure the finance conglomerate of rich old white dudes who used questionable business practices to dump hundreds of millions of dollars debt on Toys'R'Us are staggered,
How does a "finance conglomerate" "dump debt" on a company?
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@boomzilla
https://seekingalpha.com/article/4159128-playing-debt-killed-toys-r-us
You know what, I don't have a clue. I've read like a dozen articles like that one. They all say "they did a leveraged buyout and left Toys R Us with $5.3 billion of debt" but not one of them elaborates on how that is possible. Then I went to the wikipedia article for leveraged buyout, but that doesn't answer that either. This is so damn frustrating.
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@anonymous234 OK, so basically, people borrowed a bunch of money to buy equity in Toys'R'Us. But then they had too much debt and it turns out Toys'R'Us wasn't very competitive and the combination of debt and poor business was too much.
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@boomzilla If I borrow money, I have a debt. If I then buy Toys R Us with that money, that doesn't transfer the debt to Toys'R'Us. The only way I know to transfer the debt would be for me to make Toys'R'Us lend me that money, and I don't think that's allowed.
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@anonymous234 I think that's basically about private equity and leveraged buy-outs. Those can (not will, mind!) indeed be used to wring out a company under certain circumstances.
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@anonymous234 said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
@boomzilla If I borrow money, I have a debt. If I then buy Toys R Us with that money, that doesn't transfer the debt to Toys'R'Us. The only way I know to transfer the debt would be for me to make Toys'R'Us lend me that money, and I don't think that's allowed.
It's like buying a car or a house with a loan: you're borrowing money to buy something, using the thing you're buying as collateral. If you can't pay back the loan they come for the company.
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@anonymous234 said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
@boomzilla If I borrow money, I have a debt. If I then buy Toys R Us with that money, that doesn't transfer the debt to Toys'R'Us. The only way I know to transfer the debt would be for me to make Toys'R'Us lend me that money, and I don't think that's allowed.
The Toys-R-Us debt is the result of a leveraged buyout by Bain Capital. You may remember them from a few years ago when their former CEO Mitt Romney ran for president.
I'm not entirely clear on how the process works, but somehow, companies like Bain can buy a company, like Toys-R-Us, and then walk away with a lot of money, leaving the victim holding the debt.
Several fairly large companies have filed for bankruptcy this year, all as the result of debt from leveraged buyouts.
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@El_Heffe said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
I'm not entirely clear on how the process works, but somehow, companies like Bain can buy a company, like Toys-R-Us, and then walk away with a lot of money, leaving the victim holding the debt.
It's somewhat comparable to buying a house. You go to a bank, get a mortgage, and buy the house from the seller. You then have to pay down your mortgage on a monthly basis. The house is the collateral for the loan.
If you run into financial difficulties, you'll try to renegotiate the loan with your bank ('debt restructuring'). If you're successful, you can stay in the house. Otherwise, the bank moves to foreclosure. You get to live somewhere under a bridge, while the bank sells the house in an attempt to recoup as much of the money as they possibly can.
I'm not an investment banker, but what I think has happened in the case of TRU is this:
- A group of companies (KKR, Bain, Vornado) decided that they want to acquire a different company (Toys'R'Us).
- They set up a special purpose vehicle (SPV) for this job, which is a legally separate entity.
- The SPV gets initial funding from the group of companies. Say, 10% of the purchase price.
- The SPV talks to a group of banks to arrange a loan for the remaining 90%.
- The SPV acquires the target company, the target company's assets serve as collateral for the SPV's loans.
If everything goes well, the SPV pays out healthy dividends to its shareholders. The shareholders only had to invest 10% of the purchase price while income might be much higher. Furthermore, by requiring the SPV to use the shareholders for all sorts of "management services" it might be possible to syphon off more money to the shareholders.
When things go wrong, eventually the SPV can't pay off its debts anymore. The SPV goes into bankruptcy and will be liquidated. The assets owned by the SPV (the TRU brick-and-mortar stores, inventory, etc.) are sold to the highest bidders in an attempt to recoup as much of the debt as possible.
As the SPV is a legally separate entity, the shareholders are not impacted financially and also can't be held responsible.
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@AlexMedia In other words:
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@lolwhat Yeah, pretty much.
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@AlexMedia The SPV doesn't own the stores and brand, they own the company that owns the stores and brand. As far as I understand, those are entirely separate sets of property, even if one is inside the other. If the SPV can't pay its debt, the bank repossesses Toys'R'Us from them, and then proceeds to auction it to the highest bidder (or keep it if they think it's a good investment?). But inside Toys'R'Us nothing has changed.
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@anonymous234 said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
@boomzilla If I borrow money, I have a debt. If I then buy Toys R Us with that money, that doesn't transfer the debt to Toys'R'Us. The only way I know to transfer the debt would be for me to make Toys'R'Us lend me that money, and I don't think that's allowed.
You don't cease to exist unless you die. When a corporation borrows money they can go bankrupt and cease to exist. Corporations are both entities and objects. They can be used to collateralize loans.
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@AlexMedia said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
@El_Heffe said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
I'm not entirely clear on how the process works, but somehow, companies like Bain can buy a company, like Toys-R-Us, and then walk away with a lot of money, leaving the victim holding the debt.
It's somewhat comparable to buying a house. You go to a bank, get a mortgage, and buy the house from the seller. You then have to pay down your mortgage on a monthly basis. The house is the collateral for the loan.
If you run into financial difficulties, you'll try to renegotiate the loan with your bank ('debt restructuring'). If you're successful, you can stay in the house. Otherwise, the bank moves to foreclosure. You get to live somewhere under a bridge, while the bank sells the house in an attempt to recoup as much of the money as they possibly can.
I'm not an investment banker, but what I think has happened in the case of TRU is this:
- A group of companies (KKR, Bain, Vornado) decided that they want to acquire a different company (Toys'R'Us).
- They set up a special purpose vehicle (SPV) for this job, which is a legally separate entity.
- The SPV gets initial funding from the group of companies. Say, 10% of the purchase price.
- The SPV talks to a group of banks to arrange a loan for the remaining 90%.
- The SPV acquires the target company, the target company's assets serve as collateral for the SPV's loans.
If everything goes well, the SPV pays out healthy dividends to its shareholders. The shareholders only had to invest 10% of the purchase price while income might be much higher. Furthermore, by requiring the SPV to use the shareholders for all sorts of "management services" it might be possible to syphon off more money to the shareholders.
When things go wrong, eventually the SPV can't pay off its debts anymore. The SPV goes into bankruptcy and will be liquidated. The assets owned by the SPV (the TRU brick-and-mortar stores, inventory, etc.) are sold to the highest bidders in an attempt to recoup as much of the debt as possible.
As the SPV is a legally separate entity, the shareholders are not impacted financially and also can't be held responsible.
The mortgage analogy is a good one, but I would add that when you get the mortgage you borrow more than you need just to purchase the home. You use that money to buy other shit like a car or something. If the house is ever repossessed you get to keep the car and other stuff you bought. Or maybe a HELOC would fit the analogy better. If you house is foreclosed on they don't take the shit you purchased with the HELOC, well, unless you used it to do home improvements.
Analogies are messy.
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@Polygeekery As I understand, mortgages work different in the US than in Europe. For that matter, bankruptcies do too.
As I understand, in the US, you can default on the mortgage and you lose the collateral but there's no other risk.
In Europe, if you get behind on payments so bad your collateral needs to get sold, then the proceeds of the sale go to repaying the mortgage. In case the house sells for more, the surplus is yours. If it sells for less, you're still stuck with the leftover debt, and you may need to sell the car as well to pay it off completely.
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@anonymous234 said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
If I then buy Toys R Us with that money, that doesn't transfer the debt to Toys'R'Us.
True… but the legal shenanigans for doing the transfer (once you control enough of the shares, which isn't 100% but is quite high) are well known.
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@anonymous234 said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
If the SPV can't pay its debt, the bank repossesses Toys'R'Us from them, and then proceeds to auction it to the highest bidder (or keep it if they think it's a good investment?). But inside Toys'R'Us nothing has changed.
Yes, but then because you control the owned company utterly, you can order it to purchase the loan obligation from the SPV. The idea is to separate the money from the assets, transfer the money out of the company, and then who cares because the raiders have theirs and they've erected enough of a barrier to stop anyone from legally coming after them. Which will work up until someone decides that going after them outside the law (probably with a rope or a gun, pitchforks being rather less common in urban and suburban areas these days) and the ultimate backstop against misbehaviour gets applied. People have a tendency to forget that last option, but it's what ultimately prevents the worst abuses from persisting. (It's what did for the aristocracy in France and Russia in 1789 and 1917 respectively.)
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@Polygeekery said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
The mortgage analogy is a good one, but I would add that when you get the mortgage you borrow more than you need just to purchase the home. You use that money to buy other shit like a car or something.
Not in the Netherlands. You can't get a mortgage which is higher than the purchase price of the property which you wish to buy.
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@AlexMedia said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
Not in the Netherlands. You can't get a mortgage which is higher than the purchase price of the property which you wish to buy.
Is it illegal or is it just “good luck actually finding anyone willing to give you that!” It's the latter in the UK AIUI; the mortgage companies have been very badly burned by over-lending and so tend to be rather cautious about lending more than the (expected) value of the collateral.
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@dkf In the Netherlands the limits are set by the government and the central bank. So I don't think you'll find anyone willing to lend you more.
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@PleegWat said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
In Europe, if you get behind on payments so bad your collateral needs to get sold, then the proceeds of the sale go to repaying the mortgage. In case the house sells for more, the surplus is yours. If it sells for less, you're still stuck with the leftover debt, and you may need to sell the car as well to pay it off completely.
The same occurs here in the US, with the exception that you default on any equity you may have in the home. If the sale price is short of the mortgage, and it likely would be, you are still on the hook for the shortfall. The exception is a short sale, where the bank agrees that if there is any shortfall they will not come after you for it.
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@AlexMedia said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
@Polygeekery said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
The mortgage analogy is a good one, but I would add that when you get the mortgage you borrow more than you need just to purchase the home. You use that money to buy other shit like a car or something.
Not in the Netherlands. You can't get a mortgage which is higher than the purchase price of the property which you wish to buy.
What about HELOCs? Do they not exist there?
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@AlexMedia said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
@dkf In the Netherlands the limits are set by the government and the central bank. So I don't think you'll find anyone willing to lend you more.
Are you sure that's a limit on the mortgage itself, and not on the tax-deductible portion?
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@Polygeekery said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
What about HELOCs? Do they not exist there?
They most certainly exist in the UK, but fell out of favour a bit in the aftermath of the 2008 crash.
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@Polygeekery said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
What about HELOCs? Do they not exist there?
In NL, you can get a second mortgage to fund improvements to your home. You can't use it to buy a car, for example. If you want to get a new car you'll have to pony up the dough at the time of purchase, you take out a personal loan, or you lease it.
I've never heard of the term "HELOC" before, but Google helped me out a bit. I can't find much information about it applying to the Netherlands though. Is it comparable to a second mortgage?
@PleegWat said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
Are you sure that's a limit on the mortgage itself, and not on the tax-deductible portion?
There is a limit on the mortgage itself, as well as on the tax deductible portion.
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@AlexMedia said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
Is it comparable to a second mortgage?
Barring any weird lost in translation things, that is exactly what it is.
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@Polygeekery Ah, right. You can't use a second mortgage to finance a car or education in the Netherlands, it's strictly for home improvement.
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@AlexMedia yeah, here it is somewhat common to purchase vehicles and other things with a second mortgage to make that interest tax deductible.
Not that it is the best idea to do so, but people do it.
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@Polygeekery In Germany, we have (or rather, had, due to the current low-interest situation) something called a "Bausparvertrag" (roughly: Construction Savings Contract) where you could basically put a fixed amount of money into every month and get a guaranteed, good interest rate (hence the reason why banks currently don't want to do those). You could then get a certain amount of money in addition to that from your employer (incentivized through tax reductions). And after a certain time (usually at least 10 years) you could withdraw this money and get the same amount of money again as a low-interest loan.
If you then stayed below a certain threshold (I think it's 20,000€) nobody asked what you did with the money. Anything above that you were forced to show that you were using it for building a house or similar.
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@dkf said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
It's the latter in the UK AIUI; the mortgage companies have been very badly burned by over-lending and so tend to be rather cautious about lending more than the (expected) value of the collateral.
Through watching TV, I get the impression UK mortgage companies are rather cautious about everything. Flat above the fifth floor? No mortgage for you. Flat above a shop? No mortgage for you. House built of something else than bricks or stone? No mortgage for you. Lease¹ has under about a hundred years left? No mortgage for you. Flying freehold? No mortgage for you. No kitchen and/or bathroom at the moment? No mortgage for you. I could go on (if I had a better memory for listing things).
¹ A concept I keep finding very strange in itself, but apparently very normal in the UK.
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@Gurth said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
Lease¹
¹ A concept I keep finding very strange in itself, but apparently very normal in the UK.As I understand it, it's the exact same thing as 'erfpacht' which they're having trouble determining what to do with in Amsterdam. I once heard that money lenders are legally prohibited from considering the associated risks when writing up for a mortgage, but I don't have a reliable reference.
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@AlexMedia said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
If you want to get a new car you'll have to pony up the dough at the time of purchase, you take out a personal loan, or you lease it.
If you buy a car at the dealer 'op afbetaling', then the car itself will be collateral. Similarly if you borrow at the bank you can probably get them to take the car as collateral for reduced interest rates compared to a normal personal loan.
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@Gurth said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
A concept I keep finding very strange in itself, but apparently very normal in the UK.
It varies a lot across the country and is not a lease on the building, but rather on the land on which it sits. I'd much rather stick with freeholds, where the building and the land are coupled in ownership, but with leaseholds the expiry of the lease would make it legal for the landowner to demolish the building (though increasing the rent heavily is the more likely option). That's important because it means that a short lease greatly decreases the value of the building itself, and that's where it tangles into mortgages and insurance.
Leaseholds are much more common around London than around Manchester.
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@PleegWat said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
As I understand it, it's the exact same thing as ‘erfpacht'
Reading up a bit on that, it does look like it. Pretty much totally unknown around where I live when it comes to houses, though, AFAIK.
@dkf said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
It varies a lot across the country and is not a lease on the building, but rather on the land on which it sits.
Or, apparently, parts of a building — if you watch the show I referred to, quite often there’ll be things like a house divided into apartments, where it turns out the lease for the top-floor apartment doesn’t include the attic, for example, even though there’s a hatch to that attic from the apartment.
I'd much rather stick with freeholds, where the building and the land are coupled in ownership, but with leaseholds the expiry of the lease would make it legal for the landowner to demolish the building (though increasing the rent heavily is the more likely option). That's important because it means that a short lease greatly decreases the value of the building itself, and that's where it tangles into mortgages and insurance.
The main thing I find silly is the term the mortgage lenders use: anything under about 75 years seems to be considered too short for a mortgage, even though that’s going to be far longer than the current or likely next owner will ever actually use the building for. My idea is that it’s due to inflation: in the past they probably used terms of 20–25 years or so, and by now it’s crept up to maybe three times that.
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@Gurth said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
The main thing I find silly is the term the mortgage lenders use
The problem is that it really hits the resale value, and for a lot of people the only way they'll ever fully pay off the mortgage is by selling the property and moving elsewhere. It's messy and a
.
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@Gurth said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
Through watching TV, I get the impression UK mortgage companies are rather cautious about everything.
Because a few years ago, they were cautious about nothing and it went very wrong.
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@dkf said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
@Gurth said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
The main thing I find silly is the term the mortgage lenders use
The problem is that it really hits the resale value, and for a lot of people the only way they'll ever fully pay off the mortgage is by selling the property and moving elsewhere. It's messy and a
.The housing market in the UK is broken. In some ways it's less broken than it once was but overall it's still very broken.
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@dkf said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
for a lot of people the only way they'll ever fully pay off the mortgage is by selling the property and moving elsewhere. It's messy and a
.That still doesn’t explain why the remaining lease needs to be so much longer than the period in which the mortgage will be paid back. If lenders can expect to see the mortgage paid off in let’s say 25 years, then why does it matter if the current lease is 26 years or 999 years? Okay, you can make the argument that if someone sells the house after ten years, there’ll only be 16 years left so the potential next buyer might not get a mortgage, meaning the current owner might not sell it. Even that, though, doesn’t explain why do they see a need to look three full terms ahead instead of two.
@loopback0 said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
Because a few years ago, they were cautious about nothing and it went very wrong.
So now they’ve gone fully over to the other side, with no middle ground to sit in?
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@Gurth I once heard the average person spends 7 years in a house before selling it and getting another.
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In Sweden you can only get a mortgage for up to 80% of the purchase price. The rest has to be paid in cash, along with the other associated fees. If you need a loan for the final 20% and/or fees too then that will have to be made as a normal loan, which is harder to get iirc.
It is possible to get loans for house improvements baked into the mortgage as long as the total sum stays below the 80% limit, unless you get a real estate agent to revalue the house in the hope of increasing those 80% to something higher. Iirc it's also possible to get a normal loan, renovate the house and then get it revalued to bake as much as possible into the mortgage after.
There is also a law that requires continuous repayments of the loan, so you can't just sit on it and just pay interests either.
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I'm curious how much these mortgage laws in various countries affect the % of households who own rather than rent. I think (especially in the last housing bubble) the US did way too much to push home "ownership" from the legal perspective--
- Too low underwriting standards including
-- low downpayment requirements
-- lack of stringent income verification
-- Encouraging banks to not look too hard lest they be accused of red-lining (racially discriminatory lending) - Too much of a media push about how homeownership == good citizenship
- Misregulation of banks such that buying and selling sliced-and-diced mortgages was easy (Fannie Mae and Freddie Mac glomming up mortgage-backed securities, for one)
But I'm sure that you can go too far the other direction as well.
- Too low underwriting standards including
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@Benjamin-Hall said in Not wanting to be outdone by NCIX, Toys-R-Us steps up:
Too much of a media push about how homeownership == good citizenship
I feel like that's less the media's fault and more a result of our suburban sprawl. In many (most?) areas, rental opportunities just aren't there.
(Don't get me wrong - I'm much happier in a suburb than in densely urban terrain. But it does seem to cut off certain options.)
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@Unperverted-Vixen
I think it's a lot of column A, a little of column B. A lot of people I know don't consider renting as even a viable option, thinking of their rent as just "wasted" money, compared to a house payment.Which means they fall into "You suck at economics, yes you totally suck" thread prime material, since that house payment of theirs is over 50% "wasted" money (interest) for the 7 years they're going to stay in the house, not to mention all the maintenance expenses of a house that wind up getting rolled into your rent (insurance, repairs, etc). Plus, the extra costs involved in selling the house, especially if you have to sell it suddenly because you get a better job offer or you get laid off at your current job and have to substantially move to get a comparable job -- it's usually much more expensive to fire-sell a house compared to breaking a lease.
