At Thursday morning’s hearing for Borders’ bankruptcy, Chief Judge Arthur Gonzalez of U.S. District Court, Southern District of N.Y., gave the retailer the go ahead to liquidate 200 stores and begin going-out-of-business sales on Friday rather than hold off for the customary 21-day waiting period.
The motion had been on yesterday’s docket, but was delayed to await the outcome of a bidding war between two liquidation groups led by Hilco Merchant Resources and Gordon Brothers. The bidding, which took place Wednesday and lasted 9 hours, resulted with Gordon Brothers joining forces with the Hilco Group, which includes SB Capital and Tiger Capital. The winning bid raised the offer from the starting guarantee of 73% to 85.3% of inventory, or $25 million over the original stalking horse amount.
Both Borders attorney David Friedman, with Kasowitz, Benson, Torres, & Friedman LLP, and
Holly Feldman Etlin, managing director of AP Services, who testified on behalf of Borders, said that delaying the sale past the President’s Day Weekend would cause irreparable harm and could affect the company’s liquidity and ability to survive bankruptcy. Friedman noted that the company has approximately a “$2 million weekly burn” from maintaining the 200 stores designated for immediate closing. Etlin said that the rate would accelerate if the stores weren’t closed now.
Friedman and Etlin also argued that delaying the sale would cause distraction for management from the tasks at hand and that the stores would cause harm to the brand since Borders can no longer afford to maintain the inventory there. In addition the liquidators will lower their bid by a couple percentage points if they cannot move forward on Friday.
The U.S. Trustee expressed opposition to going forward with the sale before an unsecured creditors’ committee is formed on which he would like representation from employees. He was also concerned that Borders is only working with one-third of the landlords, since landlords represent a substantial portion of the company’s creditor’s list. To which Chief Judge Gonzalez responded that those landlords who are silent have nothing to say: “At this point it’s well publicized that Borders would file, and it did file.” Added attorney David Pollack, who represents a number of landlords, “This has been on every landlord’s watch list for the last two years. You’d have to have your head buried in the sand if you didn’t know something was happening.”
Publishers, which haven’t shipped Borders in six weeks, were also eager for the process to go forward immediately. The only concern that they expressed, which Borders agreed to address and which was rumored to be a sticking point in the bankruptcy filing, was that the liquidators not sell their books in bulk to a third party that would then try to return them back to the houses. As an attorney with Lowenstein Sandler, which represented seven large houses pre-petition, and three now noted in a statement in favor of starting the GOB now, “We’re looking to maximize the value of the estate, which is crucial.”