S&P cuts Toys 'R' Us to junk

Standard & Poor's lowered its ratings on Toys "R" Us Inc., including the long-term corporate credit rating and bank loan rating to BB+ from BBB- and the short-term corporate credit rating to B from A-3.

In addition, the long-term ratings on the company were placed on CreditWatch with negative implications.

S&P said the downgrade reflects the continued deterioration in Toys "R" Us' U.S. toy business and S&P's expectation that the company will not show the recovery in performance and credit ratios that was incorporated into the previous ratings.

Toys "R" Us' operations are being affected by intense competition from Wal-Mart and Target. The company recently announced 2003 holiday sales in the U.S. toy division decreased 4.9%, and that margins were under significant pressure because it lowered prices to protect market share. However, it did not provide other specific financial information.

S&P said Toys "R" Us retains its important position in the toy industry, a geographically diverse store base, and good financial flexibility. However, the company has an inconsistent record of performance since 1995 and has not been able to reverse the negative trend in its U.S. toy business despite management's repositioning efforts.

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