Borders Files for Bankruptcy

Bookstore chain Borders filed for reorganization relief under Chapter 11 bankruptcy protection today after not reaching agreements with a variety of publishers and vendors to reorganize its substantial debt, reports The New York Times.

In a statement, Borders says “Chapter 11 Provides Borders with Best Route to Reorganize and Reposition Company for the Long-Term.”

In the same statement, Borders Group President Mike Edwards said the following:

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.

Borders Group’s board of directions filed a petition for reorganization relief under Chapter 11 of the Bankruptcy Code. The move was basically made for Borders to secure sufficient capital for them to reorganize their business structure around a long-term view.

They’ll get $505 million in Debtor-in-Possession (DIP), financed 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,” said Edwards.

To further ease the financial burden, Borders plans to close roughly 30% of its locations across the U.S. in what the company refers to as a “strategic Store Reduction Program.” Most of the stores, which were marked by Borders as the most underachieving, will close in the coming weeks.

The remaining stores will continue operating normally, including permitting usage of gift cards and Borders Rewards memberships to receive discounts. Employees will continue receiving benefits and retain their previous payment plans. “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,” Edwards concluded.

Borders’ debt currently sits at $1.29 billion, with $1.27 million in assets; both numbers were revealed in a filing the company made in the U.S. Bankruptcy Court, Southern District of New York.

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