Just two years after Toy'R'Us attempted (and failed) to IPO, Bloomberg reports that insurance companies are cutting back on their coverage of the firm's suppliers. Without this 'insurance', which protects suppliers in case a retailer fails to pay them for merchandise - as in the event of a bankruptcy - the risks of shipping to the retail chain soar.

The company’s $450 million 10.375 percent of senior unsecured bonds maturing August 2017 fell 11.5 cents to 71.1 cents on the dollar...

As Bloomberg reports,

Insurance companies are cutting back on their coverage of Toys “R” Us Inc. suppliers, bringing another headache to a retailer that has suffered more than two years of losses, people familiar with the matter said.

Coface SA and Euler Hermes Group, which sell credit insurance to vendors, are removing Toys “R” Us from some policies and declining to renew coverage in other cases, said the people, who asked not to be identified because the process isn’t public. The carriers may still negotiate with some vendors to keep providing some protection, one of the people said.

Losing coverage could raise concerns for toy suppliers as they weigh the risks of shipping to the retail chain, which scrapped plans for an initial public offering in 2013. Credit insurance protects suppliers in case a retailer fails to pay them for merchandise, as in the event of a bankruptcy.

Toys “R” Us also has been seeking additional restructuring advisers, who would look for ways to cut costs and explore the company’s next steps, said one of the people. The moves signal mounting troubles at the toy-store chain, which was taken private by Bain Capital Partners, KKR & Co. and Vornado Realty Trust in a $6.6 billion deal in 2005. Though it’s working on a comeback, Toys “R” Us has struggled to compete against online sellers and mass merchants like Wal-Mart Stores Inc.

The retailer has already been working with consultants at AlixPartners to cut expenses. It said last year that the firm helped it identify $150 million to $200 million in cost savings that could be achieved by the end of 2016. Toys “R” Us has since updated that target to $325 million.

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Toys'R'Us bonds have collapsed to lows as investors recognize that credit insurers sometimes cancel existing policies if a company’s performance declines precipitously enough to place its ability to keep operating in doubt.

That occurred in the months before bankruptcy filings at RadioShack, Borders, and Circuit City.

Charts: Bloomberg