Borders Creditors Favor Liquidators’ Terms

Borders Group Inc. creditors told a judge that a liquidation of the bankrupt bookstore chain would deliver more value than a proposed sale to a Najafi Cos. unit.

A committee of creditors in Borders’ bankruptcy yesterday objected to a sale process that would have made Najafi, a Phoenix-based private-equity firm, the beginning bidder at an auction. The structure of that sale agreement, which was set to be considered today by U.S. Bankruptcy Judge Martin Glenn in Manhattan, was based on the premise that Najafi’s offer was the highest and best so far.

The creditors committee doesn’t believe the agreement “as currently structured, represents the highest and best bid,” lawyers for the committee wrote in yesterday’s court filing.

The Wall Street Journal, citing a letter to Borders employees, reported late yesterday that Najafi was withdrawing its bid. Mary Davis, a Borders spokeswoman, said in an e-mail, “We have no comment at this time.”

Najafi owns Direct Brands LLC, a direct marketer that owns Book-of-the-Month Club. Najafi bid $215.1 million for Borders stores and said it would assume $220 million of liabilities.

The liquidators’ bid would bring at least $252 million and as much as $284 million into the estate, creditors said. They estimate the value of Borders’ inventory will be more than $417 million on July 30, the expected closing date of a sale. Unsecured claims are expected to total more than $700 million, and Borders is expected to owe $211 million to its highest- priority creditors under a revolving loan and a term loan, creditors said.

July 19 Auction

After an auction, scheduled for July 19, Glenn is scheduled on July 21 to consider approving a winning bid.

Creditors said in court papers that they would support Najafi’s offer if the deal required it to continue operating the bookstore chain.

The Najafi agreement would allow it to buy the assets and then reject leases with landlords and liquidate the company, while keeping valuable intellectual property, creditors said. The offer by the liquidators’ group would provide a better recovery and allow Borders to separately handle intellectual property, the creditors said.

The Najafi agreement called for it to be paid $6.45 million if another bidder won the auction.

Separately, Ann Arbor, Michigan-based Borders asked Glenn to overrule landlords’ objections to the proposed sale of its assets and promised to provide more information about leases by next week. Borders said in a July 12 court filing that it’s trying to resolve objections from landlords for several locations.

‘Compressed Timeframe’

Borders stores “truly value their relationships with landlords, who have worked constructively with the debtors throughout these cases in their continuing efforts to rationalize their store footprint and their occupancy costs,” the company said.

The “compressed timeframe” of the sale has prevented Borders from giving landlords more disclosure, the company said.

Landlords said Borders hasn’t told them which leases it intends to keep or reject, giving them too little time to decide whether to support the proposed sale. Current timelines “do not provide the objecting landlords with sufficient notice,” Glimcher Properties Ltd., which manages five locations leased to Borders, said in a court filing.

The liquidators’ backup bid was submitted by a group that includes Hilco Merchant Resources and Gordon Brothers Retail Partners LLC. Borders pursued a “dual-track process” so it could proceed with a sale to liquidators if it wasn’t acquired as a going concern, according to court filings.

Borders, the second-largest U.S. book chain after Barnes & Noble Inc. (BKS), filed for bankruptcy in February. The company, founded 40 years ago as a single used-book store, had 642 stores in February when it sought court protection. It closed 237 stores, leaving 405 operating.

The case is In re Borders Group Inc., 11-10614, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York at

To contact the editor responsible for this story: John Pickering at

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