New Credit Deal Gives Borders a Lifeline

Friday, 28 Jan 2011 10:23 AM

 

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Borders Group Inc. received a financing commitment from GE Capital, providing a potential lifeline to the troubled bookseller, but said it would also explore options, including an in-court restructuring.

Shares jumped 36 percent in after-hours trading after Borders said GE Capital, a unit of General Electric Co., agreed to provide a $550 million credit facility under several conditions, including that it close stores and arrange financings with other lenders, vendors and landlords.

Borders, the No. 2 U.S. bookstore chain by sales, also said it is prudent to explore alternative avenues, including a possible restructuring under court supervision.

James McTevia, a bankruptcy restructuring consultant with McTevia & Associates, said Borders' discussion of an possible "in-court restructuring" was referring to a bankruptcy filing.

"Borders has a commitment for financing that allows it to walk down two paths at the same time," McTevia said.

"Borders can try to get unsecured creditors and landlords in line, and restructure the unsecured debt out of court," he continued. "The other path is a Chapter 11 reorganization. I imagine it is a heck of a lot easier for GE to participate in this credit facility if it were to involve debtor-in-possession financing, which would protect the lenders' interests."

Mary Davis, a Borders spokeswoman, declined to elaborate on Ann Arbor, Michigan-based Borders' press statement. GE Capital was not immediately available for comment.

Borders has hired restructuring specialist FTI Consulting Inc to help analyze its financing, people familiar with the situation said earlier this month.

Borders has also hired bankruptcy and restructuring lawyers, The Wall Street Journal has reported.

 

Borders has endured several years of double-digit sales declines, including a 14 percent drop in its latest fiscal year, as consumers migrate to digital books and online stores such as Amazon.com Inc .

Amazon on Thursday posted a 36 percent jump in quarterly revenue.

Unlike larger rival Barnes & Noble Inc., whose sales declines have been smaller, Borders has only a marginal share of the growing e-book market. It said it hopes to expand its non-book offerings, as well as its rewards program.

Borders' liquidity challenges have prompted it to delay payments to some vendors, including some publishers and distributors that have stopped sending it books.

It is also strapped with many long-term store leases, and the vast majority of its leases expire in 2017 or later.

Borders reported $952.5 million of short- and long-term debt as of Oct. 30, excluding amounts owed to suppliers.

A restructuring "kicks the can down the road for Borders," said Bill Brandt, president of Development Specialists Inc, a turnaround consultant.

"Creditors and landlords will have to be convinced they'll do better in a restructuring than by going into bankruptcy court. It's not just a question about having a business plan, but having a viable business."

William Ackman, whose Pershing Square Capital firm is Borders second-largest shareholder, said this week on CNBC television there is no room for two national bookstore chains.

He called for Borders and Barnes & Noble to merge, and in December offered to finance such a merger.

"Ackman may want to consider buying some of the creditors' claims, to be sure he doesn't lose his equity in the company," McTevia said.

Ackman declined to comment.

 

Borders said the $550 million credit facility would mature in 2014, and replace existing credit and term loan facilities.

Borders has resisted closing its roughly 500 namesake stores, saying they were needed to develop an e-book strategy and remake its image. It has closed stores in its smaller Waldenbooks chain.

GE Capital's commitment requires the syndication of $175 million of the senior credit facility with other lenders, $125 million of junior debt financing, and various financing arrangements with vendors, landlords and other parties.

Shares of Borders rose to $1.10 in after-hours trading from their close at just under 81 cents on the New York Stock Exchange.

© 2014 Thomson/Reuters. All rights reserved.

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