Is Toys “R” Us just the next cockroach?
Toys ‘R’ Us has filed for bankruptcy protection in the US and Canada as it attempts to restructure its debts.
We have been highlighting for over a year now how big box retailers are on a death watch as online monsters such Amazon continue to wipe out the competition. While loss of market share is certainly a part of the problem for Toys “R” Us, it is their massive debt load that was the final nail in the coffin.
Investors need to be very wary of heavily indebted companies who will need to re-finance over the next few years. Toys “R” Us had more than $1.5 billion of debt scheduled to mature over the next two years. But they are not alone, as we can see on the following chart, the amount of junk rated debt maturing is rising dramatically. From 2016 to 2020, the total junk rated debt maturing is over $1.3 trillion.
These heavily indebted companies will be competing with each other to find financing, and with the very real potential for rising interest rates. There is never just one cockroach, and we suspect that Toys “R” Us is simply just the next of many bankruptcies to surface.
We strongly suggest staying away from purchasing junk bonds, you will very likely get burned.
Stay tuned!