(Adds details from company press release)
By Joseph Checkler and Eric Morath
Of DOW JONES DAILY BANKRUPTCY REVIEW
Borders Group Inc. (BGP) filed for Chapter 11 protection
Wednesday morning and announced that it would close about 30% of it
stores nationwide in the coming weeks.
The struggling operator of the Borders and Waldenbooks chains
sought protection from its creditors in the U.S. Bankruptcy Court
in Manhattan a month after it warned it may have to restructure the
company in Chapter 11.
"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," said Borders Group
President Mike Edwards in a statement.
The Chapter 11 filing will allow Borders to access new capital
and reorganize its operations, Edwards said.
The company is launching a strategic review of its locations
with the aim of closing underperforming stores. Earlier this week,
a count of Borders stores using its store locator found it had 644
stores in 48 states, Washington, D.C., and Puerto Rico. Mary Davis,
a spokeswoman for Borders, didn't immediately return a call seeking
comment.
The Ann Arbor, Mich., company also said it has lined up a $505
million loan from GE Capital to fund its operations while in
bankruptcy. Access to such a loan is subject to court approval.
In its bankruptcy petition, Borders listed assets of $1.28
billion and liabilities of $1.29 billion as of Dec. 25, 2010.
Borders' five largest unsecured creditors are the book
publishers Penguin Putnam Inc., Hachette Book Group, Simon &
Schuster Inc., Random House and Harper Collins Publishers.
Wednesday morning on its website, Borders told customers that it
will continue business operations "as normal." All reward programs
and gift cards will be honored, the company says.
The filing comes after Borders unsuccessfully sought to avoid
bankruptcy by striking a tentative deal with GE Capital for 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 line 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.
Brick-and-mortar booksellers like Borders, second in size only
to Barnes & Noble Inc. (BKS), have battled competition from
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 website 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 Corp. (BAC) 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.
The case has been assigned to Judge Martin Glenn of the New York
bankruptcy court. The case number is 11-10614.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
-By Joseph Checkler, Dow Jones Newswires; 212-416-2152;
joseph.checkler@dowjones.com
-Jacqueline Palank, Mike Spector and Maxwell Murphy contributed
to this report.