KKR, Bain Create $20 Million Fund for Toys ‘R’ Us Workers

(Bloomberg) -- The two buyout firms that took Toys “R” Us Inc. private will each kick in $10 million to a fund for workers who lost their jobs when the retailer collapsed last year.

The contributions from KKR & Co. and Bain Capital mark the culmination of months of pressure from former employees and their representatives. Workers will be eligible if they had at least a year of tenure and earned between $5,000 and $110,000 annually at the defunct retailer, the private equity firms said in a statement Tuesday.

Victim compensation experts Kenneth Feinberg and Camille Biros will administer the program. They’ve overseen high-profile distributions of funds from disasters such as the 9/11 terror attacks and the Deepwater Horizon oil spill as well as compensation claims related to victims of sexual abuse in various Roman Catholic dioceses.

Toys “R” Us shuttered its last stores at the end of June and its liquidation left more than 30,000 workers without expected severance payouts. That prompted months of lobbying by the employees, organized in part by advocacy groups linked to the Center for Popular Democracy. Those groups estimate that workers are owed $75 million in severance pay and they have pressed Toys “R” Us creditors Angelo Gordon and Solus Alternative Asset Management to contribute to the fund, but the hedge funds have so far declined.

Lawmaker Support

The worker groups have also garnered the support of some lawmakers and public pension funds along the way, including meetings with U.S. senators in Washington in August. Last week, Toys “R” Us won court approval for a bankruptcy exit plan that ties creditor recoveries -- including severance pay for the fired workers -- to lawsuits against the retailer’s former officers and directors.

Some of those legislators weighed in on Tuesday, including a group from the toyseller’s home state of New Jersey. In a joint statement, U.S. Senators Bob Menendez and Cory Booker and Representative Bill Pascrell called the fund a “positive step. Fundamental to our values as Americans is the ideal that if you work hard and play by the rules, you should be able to get ahead.”

The workers’ efforts to get severance pay are just one part of the long drama of the decline and fall of Toys “R” Us. The company took on $5 billion of debt in the 2005 buyout, a burden that left it ill-equipped to handle competition from Walmart Inc. and Amazon.com Inc. and prompted fury from workers who said the company could have been saved.

KKR and Bain said in the statement they created the fund “in response to an extraordinary set of circumstances for both of our firms. The confluence of the disruption in retail, the push by the company’s secured creditors to liquidate the company’s U.S. operations, and the fact that we have never experienced something like this in the history of either firm, led us to try and find a way to provide some financial relief for former employees.”

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