Borders, the nation's second largest book chain, filed for Chapter 11 bankruptcy protection in New York on Wednesday, and said it will close as many as a third of its U.S. stores.
"It has become increasingly clear that in light of the environment of curtailed customer spending, our ongoing discussions with publishers and other vendor related parties, and the company's lack of liquidity, Borders Group does not have the capital resources it needs to be a viable competitor," Borders Group president Mike Edwards said in a statement.
Borders said it had "identified certain underperforming stores" — or about 30 percent of its U.S. network — that will close "in the next several weeks."
Nonetheless, Borders suggested employees and customers wouldn't be hard-hit by the reorganization: it will honor its Borders Rewards program, gift cards and other customer programs, and expects to make employee payroll and continue benefits programs.
The bankruptcy filing was long expected. Book publishers and retailers are being forced to change the way they do business as readers buy more books online or switch to digital e-books.
At the end of December shares plummeted more than 20 percent after the company disclosed it “had delayed payments to some publishers while trying to avert a liquidity crisis” — and rumors of a potential bankruptcy filing spread. Bloomberg reported that at the end of October, Borders had just $23.1 million of cash on hand, compared with $298.4 million of short-term debt and $55.8 million of long-term debt.
In January 2010, after disclosing that holiday sales had plunged more than 11 percent, the company replaced chief executive George Jones with Ron Marshall, a former principal at a private equity firm, and also appointed a new chief financial officer. Marshall began immediately calling publishers to reassure them that the retailer was selling assets, slashing costs and laying off employees in an effort to reduce debt to avoid filing for Chapter 11, the Wall St. Journal reported.
Here's the company's full release:
ANN ARBOR, Mich., Feb. 16, 2011 /PRNewswire-FirstCall/ — "It has become increasingly clear that in light of the environment of curtailed customer spending, our ongoing discussions with publishers and other vendor related parties, and the company's lack of liquidity, Borders Group does not have the capital resources it needs to be a viable competitor and which are essential for it to move forward with its business strategy to reposition itself successfully for the long term. To position Borders to remedy this condition, Borders Group, with the authorization of its board of directors, has filed a petition for reorganization relief under Chapter 11 of the Bankruptcy Code. This decisive action will give Borders the opportunity to achieve a proper infusion of capital in order to have the opportunity to have the time to reorganize in order to reposition itself to be a successful business for the long term," said Mike Edwards, Borders Group President.
"In this regard, operating under Chapter 11, Borders has received commitments for $505 million in Debtor-in-Possession (DIP) financing led by GE Capital, Restructuring Finance. This financing should enable Borders to meet its obligations going forward so that our stores continue to be competitive for customers in terms of goods, services and the shopping experience. It also affords Borders the opportunity to move forward in implementing the appropriate business strategy designed to reposition Borders to be a potentially vibrant, national retailer of books and other products," Mr. Edwards emphasized.
The company said that it is serving customers in the normal course, including honoring its Borders Rewards program, gift cards and other customer programs. Additionally, the company expects to make employee payroll and continue its benefits programs for its employees.
Borders said that it has many strengths upon which to build a solid plan of reorganization and implement a new business model for Borders to address the changing needs of the American reader. "For decades, Borders has been a beacon of engagement — a highly frequented destination for consumers and a significant venue for authors and vendors to showcase new books and merchandise. We have the ability, based on our brick and mortar presence nationally; the on-line capabilities we have in place; the loyalty of, and access to, our customers; and the products and services we offer to be an important and easy access destination of exploration and purchase for readers across the country," commented Mr. Edwards.
The company noted that, among other initiatives and subject to court approval, Borders plans to undertake a strategic Store Reduction Program to facilitate reorganization and its repositioning. Borders has identified certain underperforming stores — equivalent to approximately 30 percent of the company's national store network — that are expected to close in the next several weeks. At the same time, the company noted that a major strength of Borders is its national presence, and its extensive network of remaining stores as well as Borders.com, will continue to run in normal course. The company emphasized that the closings were a reflection of economic conditions, cost structures and viability of locations, among other factors, and not on the dedication and productivity of the workforce in these stores.
"We are confident that, with the protection afforded under Chapter 11 and with the support of employees, publishers, suppliers and creditors, and the reading public, a successful reorganization can be achieved enabling Borders to emerge from the process as a stronger and more vibrant book seller," concluded Mr. Edwards.
"We are very pleased to be able to make this commitment to Borders as support for their plan to re-organize the company," saidTim Tobin, Managing Director, Retail Restructuring, GE Capital, Restructuring Finance.
The Chapter 11 petition for relief was filed in the U.S. Bankruptcy Court, Southern District of New York. Completion of the company's DIP financing arrangements is subject to approval of the Bankruptcy Court and the satisfaction of certain conditions provided in the financing commitments received by the company from the lenders providing such financing.