October 16, 2018 – The Ad Hoc Group of Taj Noteholders filed an objection [Docket No. 5291] to the proposed sale of the Debtors’ Shared Services Business [Docket No. 5199]. The Noteholders assert, “The proposed sale of the Shared Services Business—through which Toys Delaware provides critical information technology and other back-office services to its current and former affiliates around the world—is seemingly a sham process consistent with the B-4 Lenders’ ongoing campaign of threatening to weaken the Toys “R” Us operating businesses in an attempt to extract additional value for themselves. Having already compelled the liquidation of the Debtors’ U.S. business, the B-4 Lenders should not be permitted to recklessly threaten the Taj Debtors’ restructuring. The way in which the SSC Sale Motion accomplishes the B-4 Lenders’ end is fairly straightforward. Toys Delaware is currently obligated to supply shared services to the Taj Debtors’ operating subsidiaries under a global shared services contract called ITASSA. Toys Delaware cannot terminate that agreement in the ordinary course without providing one-year notice to the Taj Debtors—that is, sufficient time for the Taj Debtors to attempt to transition these back-office services away from Toys Delaware without facing material business disruption. ITASSA is profitable for Toys Delaware and, as a result, rejection of that agreement would not constitute a valid exercise of business judgment. Faced with the likely need to assume ITASSA next week as part of its plan confirmation hearing, Toys Delaware and the B-4 Lenders concocted a scheme by which the Toys Delaware disinterested directors would abdicate their business judgment responsibility on the eve of plan confirmation by attempting to ‘sell’ the Shared Services Business on an extremely abbreviated eleven-day timeline. Because no bidder could reasonably conduct due diligence, negotiate a purchase agreement, or arrange fully committed financing on that schedule, the proposed sale process all but ensures that the B-4 Lenders will take the Shared Services Business free and clear of liabilities, including those imposed under ITASSA. The B-4 Lenders, then, will seek to leave ITASSA behind at the Toys Delaware estate and no doubt direct Toys Delaware to reject ITASSA to exert leverage against the Taj Debtors (and the Ad Hoc Group as their sole creditors). The B-4 Lenders make no secret of the fact that their end goal is to use the prospect of repudiating ITASSA (thereby harming the Taj Debtors’ Asian operating business) in the hopes of compelling a more favorable deal on a wholly-unrelated intellectual property dispute involving a different Debtor…This is the true purpose behind the SSC Sale Motion: to provide the B-4 Lenders with a ‘lever’ to threaten the Taj Debtors (and their creditors) with terminating essential shared services in the run-up to the holiday season in the hopes of extracting value to which they are not entitled under an unrelated intellectual property license. That is nothing short of extortion, plain and simple. The proposed sale of the Shared Services Business, at least as presently constructed, thus, does not serve a legitimate business purpose; rather, it is a contrived effort to permit the transfer of the Shared Services Business free and clear of its ITASSA obligations and thereby avoid the Ad Hoc Group’s objection to the rejection of that agreement in connection with the confirmation of the Toys Delaware Plan.”
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