By Joseph Checkler and Eric Morath
Of DOW JONES DAILY BANKRUPTCY REVIEW
Borders Group Inc. (BGP) filed for Chapter 11 protection in New
York on Wednesday morning, a month after the struggling operator of
the Borders and Waldenbooks book chains warned it may have to
restructure the company in bankruptcy court.
On its petition with the U.S. Bankruptcy Court in Manhattan, the
Ann Arbor, Mich., company said it had assets of $1.28 billion and
liabilities of $1.29 billion as Dec. 25, 2010.
Borders' five largest unsecured creditors are the book
publishers Penguin Putnam Inc., Hatchette Book Group, Simon &
Schuster Inc., Random House and Harper Collins Publishers.
Borders had sought to avoid bankruptcy by striking a tentative
deal with GE Capital over a new $550 million secured line of
credit. But the retailer first had to hit certain benchmarks, such
as negotiating more favorable store leases with its landlords and
finding other lenders to take on $175 million of the credit
line.
The deal also required Borders to raise another $125 million in
junior debt, which the retailer sought to do by asking the
publishers whose books stock its shelves to forgive unpaid bills in
exchange for debt that Borders could then repay. But most
publishers haven't welcomed the overture.
To boost its liquidity, Borders last month announced it would
delay payments to its vendors, landlords and other key creditors.
But the retailer had acknowledged that and other cost-cutting moves
might not be enough to keep it out of Chapter 11, so it also
announced that it was exploring an "in-court restructuring."
To that end, Borders reportedly entered into talks with of Bank
of America Corp. (BAC) and General Electric Co.'s (GE) financing
arm over up to $550 million in bankruptcy funding.
Brick-and-mortar booksellers like Borders, second in size only
to Barnes & Noble Inc. (BKS), have struggled to compete with
Internet-only retailers such as Amazon.com Inc. (AMZN) and the
advent of digital books and e-readers.
In the past year, Borders has tried to shift its focus away from
its physical presence by halting expansion plans and identifying
unproductive stores for closure. At the same time, the company
reworked its customer loyalty program, overhauled its Web site and
introduced a digital book store.
Last March, Borders and its lenders struck a deal to amend its
debt. Lenders led by Bank of America agreed to provide a $970.5
million secured revolving credit facility, while an affiliate of
liquidation firm Great American Group led another lender group
behind a $90 million secured term loan.
The retailer in July sold off its Paperchase line of stationery,
cards and gifts for $31.2 million, the bulk of which--$25
million--it was required to put toward reducing its debt under a
$90 million term loan facility.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection)
-Jacqueline Palank and Mike Spector contributed to this
report.
-By Joseph Checkler, Dow Jones Newswires;
212-416-2152;joseph.checkler@dowjones.com