Borders Group Inc. won court permission to loosen the terms of its bankruptcy loan, giving the U.S. bookstore chain more time to find a buyer and avoiding immediate liquidation of about 40 stores.
Borders plans to file a proposal by July 1 to sell itself at a court-approved auction with a guaranteed buyer, known as a stalking horse, making an initial bid, Mary Davis, a company spokeswoman, said in an interview.
U.S. Bankruptcy Judge Martin Glenn, who is overseeing Borders’ bankruptcy in Manhattan, approved the changes today after a hearing in New York. Borders needed to extend deadlines in its $505 million bankruptcy loan that were set to expire this month to avoid being forced to immediately start liquidating 40 stores, most of them profitable, that the company wants to include in a sale, Davis said.
“The stores will stay open for the foreseeable future,” Davis said. The extra time will allow the company to talk to potential stalking-horse bidders, she said.
The Ann Arbor, Michigan-based company filed for bankruptcy in February. It has 405 stores after shutting 237.
The company paid its lenders a fee of $1 million to change the deadlines and make other changes to the loan, according to court documents. The fee is lower than what was originally proposed, Andrew Glenn, a lawyer representing Borders, said at today’s hearing, according to an audio transcript.
“There were arms-length and vigorous negotiations of that amount, the committee was involved in those negotiations and tried to get it even lower than that but $1 million was the best that we could do,” Andrew Glenn said.
The judge said he was approving the motion “with some reluctance” given the size of the fee.
“The reluctance is I think you’re getting raped, is the best way I can describe it,” Judge Glenn said, according to the audio transcript. “These fees are out of sight. The other side of the coin is, it’s the only game in town, so it is with reluctance that I approve the motion. A million-dollar fee for very minimal extension in these dates is an extraordinary fee, very close to me saying, ‘No.’”
The case is In re Borders Group Inc., 11-10614, U.S. Bankruptcy Court, Southern District of New York (Manhattan).