Borders Group Inc., the second-biggest U.S. bookstore chain, is taking competing bids to liquidate 200 of its stores after winning court permission on its first day in bankruptcy to draw on a $505 million loan.
U.S. Bankruptcy Judge Arthur Gonzalez in Manhattan approved $400 million of so-called debtor-in-possession loans on an interim basis to finance the reorganization. Lenders are led by GE Capital. He first demanded that a budget for the bookstore’s use of the money be filed with the court.
He didn’t rule yesterday on a request to close 200 stores amid competing bids for the right to liquidate the merchandise and furniture. A new hearing will be held today.
Even as Borders closes at least 30 percent of its 642 stores, the bookseller will try to save “thousands and thousands” of jobs, company lawyer David Friedman told Gonzalez.
“This is a debtor that is seeking rehabilitation, indeed rebirth, in the face of massive operational headwinds and a sea-change in the ways in which consumers acquire information,” Friedman said.
Borders, based in Ann Arbor, Michigan, filed for Chapter 11 protection yesterday 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. and Wal-Mart Stores Inc.
Waldenbooks, Borders Express
The company has stores under the Borders, Waldenbooks, Borders Express and Borders Outlet names in the U.S. and Puerto Rico, according to the court filing. It says it needs to close at least 200, and potentially 75 more.
It’s losing about $2 million a week at the underperforming stores and plans to start sales by Feb. 19 to take advantage of the President’s Day holiday, according to court papers.
The auction for rights to liquidate the stores is ongoing, with one offer made yesterday that would give creditors $30 million more than an initial “stalking horse” bid, Friedman said.
Borders has a deal with liquidators Hilco Merchant Resources LLC, SB Capital Group LLC and Tiger Capital Group to guarantee it 73 percent of the cost value of all merchandise at the closing stores, which Borders estimated in court papers will bring in $131 million to $148 million to repay its creditors.
“We have people with real money willing to give it to us,” Friedman said, adding that the 200 stores are stocked with dwindling merchandise less attractive to consumers and that any restocking of shelves wouldn’t pay off.
Borders can honor its customer-rewards program, serving 42 million members, and pay its employees, which include 6,100 full-time workers and 11,400 part-time employees, as Gonzalez approved all the company’s routine so-called first-day requests.
Lawyers for the U.S. Trustee, an arm of the Justice Department that oversees bankruptcies, as well as lawyers for landlords, had said they wanted to know Borders’ budget considering the size of the $400 million interim loan. Borders said it hadn’t filed a budget because that might reveal competitive information.
Investment firms Tennenbaum Capital Partners LLC, a unit of Stone Tower Capital LLC and GB Merchant Partners are also participating, according to court papers. The one-year facility will include a $410 million revolving line of credit, a $20 million first-in last-out portion, a $20 million letter of credit facility and a $55 million term loan B, for which GA Capital LLC is the lead arranger.
Friedman said that the pre-bankruptcy lenders are over-secured, and there would be about $100 million left over after secured lenders are repaid.
Borders, whose market value shrank by more than $3 billion since 1998, racked up losses by failing to adapt to shifts in how consumers shop. Its first e-commerce site debuted in 2008, more than a decade after Amazon.com revolutionized publishing with online sales. The world’s largest online retailer beat it again by moving into digital books with the Kindle e-reader in 2007, a market Borders entered in July.
GE Capital had offered Borders a $550 million loan in January that required it to syndicate $175 million of the commitment and get another $125 million in junior debt, which Borders was unable to do, according to court papers.
Gonzalez was handling the case yesterday in the absence of Judge Martin Glenn, who has been assigned the case.
The case is In re Borders Group Inc., 11-10614, U.S. Bankruptcy Court, Southern District of New York (Manhattan).