Among several options the chain is considering to pay down $5 billion in debt it owes as a result of a leveraged buyout in 2005.
Trio of owners – private equity firms Kohlberg Kravis Roberts and Bain Capital Partners and real estate investors Vornado Realty Trust, bought the company in a deal worth $6.6 billion.
A Chapter 11 bankruptcy would allow the company to restructure $400 million in debt that is due in 2018, and then renegotiate the rest.
The chain had earlier hired law firm Kirkland & Ellis LLP, it was exploring options to take care of the debt, and is currently working with its creditors to turn back a Chapter 11 filing.
As per source, the filing is likely to come as soon as this week.
The debt crisis looms at a critical time for the toy seller.
Due to rush of holiday shopping, Toy R Us made 40 percent of its sales in the 4th quarter. Vendors are highly anxious about the chain’s ability to pay down its debts, which could lead to a shortage of toys and further worsen the issue.