Borders Hires Bankruptcy Lawyers to Help Restructure
Borders Group, the country’s second largest bookseller who has struggled in the face of a tough economy and competition from other major booksellers and media companies, has hired a team of bankruptcy lawyers to address its financial situation.
The Wall Street Journal reports that part of these bankruptcy lawyers’ job will be to keep the company “out of bankruptcy court,” according to sources that are close to the situation.
Borders is attempting to get $500 million in credit as it eyes a restructuring in the face of problems. Kasowitz, Benson, Torres & Friedman are the lawyer group who Borders has hired to work with this restructuring.
Payments stopped to big publishers and distributors last month. The result has been that publishers have stopped sending their merchandise.
The bankruptcy lawyers who the company has brought on board will join a team of bankers as they work to avoid bankruptcy filing. The Wall Street Journal stated that a bankruptcy filing would be a worst-case scenario.
Conversations are taking place between Borders and publishers to convince publishers to allow the bookseller to defer payments. They have also been talking to a company that provides business capital about acquiring a new revolving credit facility to replace existing debt, according to the Wall Street Journal, and pump new capital into the company and repay some of the more than $200 million in debt that Borders is sitting on.
As Borders attempts to restructure the way that it does business in a rapidly changing and highly competitive marketplace, the company hopes to buy time with this infusion of new capital. This process will, executives hope, take about 6 to 12 months during the restructuring.
Not all of Borders’ creditors are convinced. Some big publishers still aren’t buying into the restructuring plan after meeting with bankruptcy lawyers this week and learning more about them. Borders is hoping for cooperation from these publishers who supply their stores.
One request from Borders to vendors is that they defer payments and get in return a promissory note that will gather interest over its life of three years. Sources say that these promissory notes would be backed up by Borders collateral.
“Nothing has changed,” a publishing executive told the Wall Street Journal. “There will be further discussions between experts representing both sides, but the question is why would you extend further credit if you don’t have confidence in their strategic plan going forward?”
He went on to say that the negotiating situation was fluid.
One major book supplier, Ingram Content Group, has kept the flow of merchandise going despite the negotiations. Other publishers have said that if the Borders restructuring goes well, they could be in a good enough strategic position. “None of the alternatives are great,” the publisher added, however.
Borders is hoping to bring together these series of agreements by February, referring to the vendors agreeing to defer their payments, and to obtain the new financing from GE Capital.
In the meantime, Borders has the task of convincing numerous publishers to buy into a restructuring of its business.