Borders Group Inc. (BGP), the second- biggest U.S. bookstore chain, will get approval of a $505 million loan to fund operations in bankruptcy after the agreement is changed, a judge said.
Separately, U.S. Bankruptcy Judge Martin Glenn said today a motion filed by Borders’s law firm, Kasowitz, Benson, Torres & Freidman LLP, copied one made by Weil Gotshal & Manges LLP in the bankruptcy of Blockbuster Inc. Kasowitz can’t seek fee reimbursements for the work, Glenn said in Manhattan.
Borders, based in Ann Arbor, Michigan, previously received permission to draw $400 million on an interim basis from the loan from lenders led by General Electric Capital Corp. Glenn said that he will give final approval after changes to the initial agreement are approved and entered into court documents.
“When I look at the incremental cost of new money coming in, it’s pretty steep,” Glenn said. The loan nonetheless appeared to be the best available option for Borders, he said.
Borders, operating under Chapter 11 protection, is liquidating 200 stores in a deal that may bring in $175 million to creditors. The company plans to reorganize its remaining stores.
“The debtors must have credit. Without that, it can’t survive,” lawyer David Friedman told Glenn.
Glenn said he would approve a motion to pay utility companies, with some revisions. In the middle of hearing the motion, he broke from normal court procedure to quote Charles Caleb Colton: “imitation is the sincerest form of flattery,” Glenn said, telling Borders lawyer Jeffrey Gleit that the motion is “taken almost verbatim” from Weil Gotshal’s request to pay utilities in Blockbuster and didn’t cite Weil. Glenn said Kasowitz is barred from submitting a fee request for its work on the motion, including those for inserting the Borders case caption on a Weil pleading.
“I understand your honor’s point, and it’s well taken,” Gleit said, apologizing. The former Weil associate said he often sees passages he drafted in Weil’s motions.
The $505 million loan is a “lifeline” that will allow the company to reorganize, and the ability to draw on it already has allowed the company to replenish depleted inventory and beat its initial budget, Borders said in court papers. Changes made to the loan agreement include a provision that gives a committee of unsecured creditors $125,000, up from $50,000, to fund investigations of claims of secured lenders.
Separately, Glenn gave the company more time to assume or reject leases for its locations and approved employee wages.
Borders filed for Chapter 11 protection in February after management changes, job cuts and debt restructuring failed to make up for sagging book sales in the face of competition from Amazon.com Inc. (AMZN) and Wal-Mart Stores Inc. (WMT)
The company made an emergency request to close at least 200 of its 642 stores, and potentially 75 more, to stem losses of about $2 million a week. The stores are under the Borders, Waldenbooks, Borders Express and Borders Outlet names in the U.S. and Puerto Rico.
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