After a drawn out process that began at the end of last year when it missed payments to top publishers, Borders Group has given in to the inevitable and filed for Chapter 11 bankruptcy protection in Bankruptcy Court for the Southern District of New York. The company has received $505 million in debtor-in possession financing led by GE Capital, Restructuring Finance. And as part of its turnaround plan, Borders said it will close approximately 30% of its current store base, about 200 locations, within the next several weeks.
“It has become increasingly clear that in light of the environment of curtailed customer spending, our ongoing discussions with publishers and other vendor related parties, and the company’s lack of liquidity, Borders Group does not have the capital resources it needs to be a viable competitor and which are essential for it to move forward with its business strategy to reposition itself successfully for the long term.,” said Borders president Mike Edwards in a statement explaining the decision to file for Chapter 11. “This decisive action will give Borders the opportunity to achieve a proper infusion of capital in order to have the opportunity to have the time to reorganize in order to reposition itself to be a successful business for the long term,” said Edwards.
According to Borders, the financing should enable the company to operate the stores that will remain open in a “normal course” including honoring its Borders Rewards program, gift cards, and other customer programs. Additionally, the company said it expects to make payroll and continue its benefits programs for its employees.
The announcement made this morning was foreshadowed last night when Borders implemented an ordering freeze and Ingram, its lifeline to the publishers, stopped shipping books. Publishers are now on the hook for hundreds of millions of dollars, led by Penguin Group (USA) which is owed $41.1 million, followed by Hachette at $36.9 million, Simon & Schuster at $33.8 million, Random House at $33.5 million, and HarperCollins at $25.8 million. Neither major book distributor, Ingram or Baker & Taylor, were among the leading creditors, and only one book distributor, National Book Network, is owed money with $2 million outstanding. The top 30 unsecured creditors are owed $314 million. The filing listed $1.27 billion in assets and $1.29 billion in liabilities. Borders said it expects to be able to pay vendors for merchandise shipped to it after today’s filing; those owed money prior to the filing will only be paid with the approval of the bankruptcy court.
Although it will close 30% of its stores, Borders said it plans to remain “a national presence,” and that in addition to its bricks-and-mortar stores it will continue to operate its online bookstore and its e-bookstore.
Completion of the company’s DIP financing arrangements is subject to approval of the bankruptcy court and the satisfaction of certain conditions provided in the financing commitments received by the company from the lenders providing such financing. To oversee the reorganization, Ken Hiltz has been named v-p, restructuring of the company.
Additional information about the reorganization is available at www.bordersreorganization.com.