Toys 'R' Us is working to put together a loan to fund its operations in a potential bankruptcy filing that could come before the holiday sales season, according to people familiar with the matter.
The toy merchant's move underscores the deep distress rippling through retailers of all sizes as consumers increasingly shop online at sellers such as Amazon.com Inc. or go to discounters such as Wal-Mart Stores Inc.
A spokeswoman for Toys 'R' Us did not immediately respond to a request for comment. The people could not be identified because the bankruptcy plans are not yet public.
The Wall Street Journal earlier reported that the company was considering filing for Chapter 11 protection in U.S. Bankruptcy Court in Richmond, Virginia.
There have been more than a dozen significant retail bankruptcies this year, but none for retailers as big as Toys 'R' Us, which has about $5 billion in debt and more than 1,600 stores worldwide.
A loan of several hundred million dollars as part of any possible bankruptcy filing would reassure the chain's vendors it could pay them for the loads of stuffed animals, action figures and dolls it needs to stock its shelves for the holiday season, the people said.
Part of the retailer's current financial woes stem from vendors demanding tighter repayment terms over fears that Toys 'R' Us may file for bankruptcy, the people added. The tighter terms have added to the Wayne, New Jersey-based company's cash crunch, they said.
Toys 'R' Us tapped restructuring attorneys from Kirkland & Ellis LLP, CNBC reported this month.
The retailer had already said it was working with an investment bank to assess options for about $400 million in debt that comes due next year.
Buyout firms KKR & Co. LP and Bain Capital LP, together with real estate investment trust Vornado Realty Trust, took Toys 'R' Us private for $6.6 billion in 2005. The deal saddled the company with debt, limiting its ability to revamp its stores and make online shopping easier.
Toys 'R' Us opened a store in New York City's Times Square this year to capture more holiday shoppers.