Borders Group May File for Bankruptcy as Soon as Next Week; Shares Decline

Borders Group Inc., the second- largest U.S. bookstore chain, may file for protection from creditors as soon as next week, according to three people familiar with the matter.

The retailer will likely close at least 150 stores, one person said. The people declined to be identified because the proceedings aren’t public.

Several private equity groups are weighing whether to provide a junior loan to the Ann Arbor, Michigan-based company, one of the people said.

Mary Davis, a Borders spokeswoman, declined to comment and referred to a Jan. 27 statement from Borders President Michael Edwards. He said the company “is doing everything possible” to maintain its relationships with vendors and publishers. While his company has a financing commitment from General Electric Capital Corp., Borders may proceed to an in-court restructuring, Edwards said in the statement.

Borders sank 26 cents, or 36 percent, to 47 cents at 4:01 p.m. in New York Stock Exchange composite trading, the largest decline since December 2008. New York-based Barnes & Noble Inc., the largest U.S. bookseller, advanced $1.17 or 7.4 percent to $16.92.

The retailer, which operates more than 650 stores, began looking for new sources of cash after disclosing in December that lenders cut its borrowing capacity and that failure to find replacement credit may lead to a violation of its debt agreements and a “liquidity shortfall” in the first quarter.

Borders delayed payments to publishers last month as part of an effort to restructure its financing and avoid a cash shortfall.

Funding Conditions

The retailer received a financing commitment of $550 million from the General Electric unit on Jan. 27. The funding had several conditions including securing $175 million from other lenders and $125 million in junior debt provided by vendors and lenders. The funding is also contingent on Borders completing a program to close stores.

Borders has posted almost $800 million in losses since 2006 as it lost market share to competitors such as Amazon.com Inc. The retailer has also been slow to embrace digital reading, which continues to gain popularity with consumers.

To contact the reporters on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net; Jonathan Keehner in New York at jkeehner@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net; David Scheer at dscheer@bloomberg.net.

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