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Private-Equity Debt Drives Toys R Us to Liquidate

Saddled with billions in debt from private-equity firms that bought it, Toys R Us will head to bankruptcy court Thursday as it liquidates the U.S. operations of the 70-year-old toy company that employs 30,000 workers.

(CN) –  Since just after World War II, Toys R Us has been a fixture of American childhood at warehouses across the United States – until billions in debt from private-equity firms broke the back of its cartoon giraffe mascot.

The New Jersey-based company's plans to liquidate 740 U.S. stores over the coming months -- threatening roughly 30,000 jobs -- trickled out on this morning via a recording of Toys R Us CEO David Brandon's meeting with employees Thursday.

Founded in 1948, Toys R Us never recovered from its $6.6 billion leveraged buyout in 2005 by private-equity firms Bain Capital, KKR & Co. and Vornado Realty Trust. The purchase left it $5.3 billion in debt.

Since that time, Toys R Us faced new competitors in mass retailers like Walmart and Target, as well as online competition from Amazon.

Brandon told his workers that the company would file liquidation papers and there would be a bankruptcy court hearing today, according to excerpts of the tape published by the Associated Press.

"We worked as hard and as long as we could to turn over every rock," Brandon said in the recording.

Toys R Us had vowed to stay open when it filed for Chapter 11 bankruptcy protection last fall, but Brandon told employees its sales performance during the holiday season was "devastating.”

According to the Associated Press, Brandon’s recording also revealed plans for shutting down many of the more than 750 international Toys R Us stores.

In Canada, Brandon said, Toys R Us will try to bundle its roughly 200 stores and seek a buyer. The company is already closing its businesses in the United Kingdom. Brandon told his employees that the company will likely also liquidate its businesses in Australia, France, Poland, Portugal and Spain.

The Associated Press contributed to this report.

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