Borders has filed for Chapter 11 bankruptcy protection, listing a debt of $1.29 billion and assets of $1.275 billion, in U.S. Bankruptcy Court. They expect to “finalize and implement a store closure, store liquidation and lease modification plan” as approved by their board, closing about 30 percent of their 642 stores, or approximately 200 locations, over the next few weeks. Creditors, including book publishers and distributors, are owed about $230 million: Penguin is owed $41.1 million, Hachette Book Group $36.9 million, Simon & Schuster $33.75 million, Random House $33.5 million, and HarperCollins $25.8 million. Borders expects to pay vendors for merchandise shipped after today’s filing; existing debt will be settled with the approval of the bankruptcy court. This morning’s announcement follows an ordering freeze last night; Ingram is no longer shipping books.
The bookseller announced it had received a commitment for $505 million in Debtor-in-Possession (DIP) financing led by GE Capital which, according to the company, “should enable Borders to meet its obligations going forward.” Previous negotiations for an unsecured $550 loan with GE Capital fell through because the retailer wasn’t able to meet benchmarks including securing additional funding. Borders expects to maintain employee payroll and benefits, and to honor gift cards and the Borders Rewards program.
Borders Group President Mike Edwards said, “It has become increasingly clear that in light of the environment of curtailed customer spending… and the company’s lack of liquidity, Borders Group does not have the capital resources it needs to be a viable competitor.” The bookseller’s lackluster performance is seen as a result of factors including the decision in 2001 to transfer online business to Amazon, too much overseas expansion, an aggressive buy back of stock, problems with long-term store leases, and a failure to compete with the Kindle and Nook for e-book and e-reader sales.
Ken Hiltz has been named senior vice president, restructuring of the company; advisory firms include Jefferies & Company for financial restructuring services; DJM Property Management for real estate advisory services; and AP services for interim restructuring and management services.