Borders Group Inc., the second-largest U.S. bookstore chain, lost more than a fifth of its market value after saying it delayed payments to some publishers while trying to avert a liquidity crisis.
Borders sank 26 cents, or 22 percent, to 90 cents at 4:15 p.m. in New York Stock Exchange composite trading, the biggest drop in more than two years. The shares have retreated 24 percent this year.
The company said earlier this month it was in talks to refinance debt and may violate its credit agreements in the first quarter if negotiations fail. Borders reiterated today that there can be no guarantee its initiatives will be successful. If the refinancing fails, the chain may face a “liquidity shortfall” in the next quarter, Mary Davis, a Borders spokeswoman, said today by telephone.
“The timing certainly raises eyebrows,” Peter Wahlstrom, an analyst with Morningstar Investment Services, said in a telephone interview. Bookstores are typically most flush with cash at the end of the holiday shopping season, when they can stock lower inventories for the slow winter months, he said.
“If they are doing this at the end of December, it’s more concerning,” said Wahlstrom, who is based in Chicago.
Borders is in discussions with potential lenders that would provide funds through the start of 2012, the Ann Arbor, Michigan-based company said Dec. 9. Borders also said it was looking to raise money through asset sales and cost reductions.
If Borders doesn’t find additional lenders, the company may have to accelerate store closures, Wahlstrom said.
The Wall Street Journal yesterday reported the payment delays.
Borders and larger rival Barnes & Noble Inc. face growing competition as consumers download more digital books on electronic devices such as Amazon.com Inc.’s Kindle. Borders has reported three quarterly losses in a row as sales and its store count shrank.
Borders had $23.1 million of cash on hand at the end of October, compared with $298.4 million of short-term debt and $55.8 million of long-term debt, the company said in its third-quarter earnings report released Dec. 9. Working capital, the amount a company has to maintain operations, was negative $15.3 million, according to Bloomberg calculations. Negative working capital indicates a company may be unable to meet short-term obligations through current assets of cash, accounts receivable and inventory.
On Dec. 6, the chain’s largest investor, William Ackman’s Pershing Square Capital Management LP, disclosed that it would help Borders fund a bid for Barnes & Noble.