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Borders Group, Inc.
101 Phoenix Drive
Ann Arbor, Michigan 48108
Tel No. 734-477-1100
Fax No. 734-477-4538
http://www.borders.com/
Borders Group, Inc., through its subsidiaries, engages in the
operation of book, music and movie superstores, as well as mall-
based bookstores. The Company is noted to be the second largest
traditional book seller in the U.S., second to Barnes & Noble
Inc.
At January 29, 2011, Borders Group operated 642 bookstores under
the Borders, Waldenbooks, Borders Express, and Borders Outlet
names, as well as Borders-branded airport stores, including 639
in the United States and 3 in Puerto Rico. Two of Borders'
flagship stores are located in Manhattan. The Company also
operates a proprietary e-commerce Web site http://www.Borders.com
which was launched in May 2008.
Borders rely on its vendors, including book publishers and music
and video distributors, for goods to maintain its business.
Moreover, about 90% of Borders' superstores feature a cafe under
the "Seattle's Best" tradename.
Founded in 1971, the Company is headquartered in Ann Arbor,
Michigan. As of February 11, 2011, Borders employed a total of
approximately 6,100 full-time employees, approximately 11,400
part-time employees, and approximately 600 contingent employees
throughout the U.S. Borders employees are not subject to any
collective bargaining agreements.
The Company listed assets totaling $1,275,430,500 and debts
totaling $1,293,112,600 as of December 25, 2010.
On February 16, 2011, the Company and seven of its affiliates
sought bankruptcy protection. In its Chapter 11 petition, the
Company said it aims to pursue an operational and financial
restructuring; to restore and revitalize its business as the
second largest chain of bookstores in the U.S.; and to save
thousands of jobs. It also seeks to regain access to capital for
everyday operations and to shed about 200 stores it cannot afford
to keep.
Corporate Structure
Borders Group, Inc. owns 100% of the equity interests in Borders,
Inc. and BGP (UK) Ltd. Borders, Inc. owns 100% of the equity
interests in Borders Properties, Inc., Borders Direct, LLC,
Borders Online, Inc., Borders Online LLC and Borders
International Services Inc.
A chart presenting Borders' corporate structure is available for
free at http://bankrupt.com/misc/Borders_OrgnztnalChrt.pdf
The Company started out as a used books store in Michigan founded
by brothers Tom and Louis Borders in 1971. The Borders brothers
sold the bookstore chain in 1992 to Kmart. Kmart at that time
already owned the Waldenbooks mall bookstore chain. Three years
later, Kmart spun off Borders Group Inc.
Entities who own 10% or more of the equity interests of Borders
Group, Inc., are:
% of Equity
Entity Ownership
------ -----------
Pershing Square Capital Management, L.P. 31.3%
LeBow Gamma Limited Partnership 15.4%
BGI common stock is publicly traded on the New York Stock
Exchange under ticker symbol BGP. As of February 8, 2011,
Borders had 72,042,189 shares of common stock outstanding. The
Company had 2,413 holders of its common stock.
Trading of Borders' shares closed at 23 cents on February 15,
according to data from Yahoo Finance.
Capital Structure
Borders' significant sources of liquidity are funds generated
from operating activities, borrowings under credit agreements,
and credit provided by its vendors.
Borders has an existing restated revolver credit facility of up
to $970.5 million with Bank of America, N.A. and certain other
lenders; and a $90 million term loan agreement with GA Capital
LLC and certain other lenders. Both loan facilities were
executed on March 31, 2010.
The Revolver Facility is divided into an existing tranche
maturing on July 31, 2011, and an extended tranche maturing on
March 31, 2014. The Term Loan Facility is comprised of an $80
million tranche, which will mature on March 31, 2014, and a $10
million tranche.
As of February 16, 2011, about $196 million was outstanding under
the Revolver Facility, while about $48 million is outstanding
under the $80 million Term Loan tranche. No amounts are
outstanding under the $10 million Term Loan tranche.
The Loan Facilities are secured by a first priority security
interest in certain inventory, accounts receivable, cash and
other properties of the borrowers, and a second priority security
interest in other collateral of the borrowers.
Prior to December 2010, Borders relied on unsecured vendor credit
to finance about 44% of its inventory. As of February 16, 2011,
Borders owe about $303 million to vendors for inventory.
ROAD TO BANKRUPTCY
Borders Chief Financial Officer Scott Henry relates that a
variety of external economic and competitive factors have led to
a substantial decline in Borders' profitability and liquidity.
The U.S. book retailing industry has experienced little or no
growth in recent years, Mr. Henry notes. Moreover, he avers,
Web-based retailing has continued to increase in market share as
a distribution method for book, music and movie merchandise; and
the Internet has enabled changes in the formats of many of the
product categories Borders offer. Borders' results of operation,
he adds, are also dependent on discretionary spending by
consumers, which has deteriorated significantly over the last
several years. In effect, the Company reported losses in
operations in the past several quarters.
Amidst this scenario, by December 2010, Borders took several
actions to improve liquidity including discussions with potential
lenders for replacement financing through at least the beginning
of 2012, pursuit of potential asset sales, cost reduction and
sales generating initiatives.
Borders started withholding vendor payments in December 2010, and
sought to restructure vendor obligations in an effort to improve
liquidity. In January 2011, Borders increased the holdback of
vendor payments and began to withhold payments to landlords as
well. With Borders' support and funding, (1) many of the vendors
retained the law firm of Lowenstein Sandler PC as counsel and
Alvarez & Marsal as their financial advisor to negotiate with
Borders; and (ii) a group of major landlords retained the law
firm of Kelley Drye & Warren LLP as counsel and A&M as their
financial advisor to assist with the negotiations.
By January 27, 2011, Borders got a tentative commitment for a
$550 million credit facility from GE Capital. The commitment
required syndication of $175 million of the total commitment and
required the Company to raise an additional $125 million of
junior capital. The Company, however, failed to obtain the
necessary financing on an out-of-court basis and, thus, turned
its attention to sourcing a debtor-in-possession financing.
Financial advisor Jefferies & Company Inc. was commissioned by
Borders to obtain proposals of a debtor-in-possession financing.
After engaging in active discussions, Borders, GE Capital and GA
Capital were able to agree on the terms of a $505 million DIP
Loan, whose terms are noted in a term sheet dated February 14,
2011.
Shortly thereafter, on February 16, Borders and its affiliates
filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court
for the Southern District of New York.
The Company attached to its bankruptcy petition schedules on a
list of its operating premises, its substantial assets,
litigations it is a party to, and the identity of its senior
management. A copy of the Schedules is available for free at:
http://bankrupt.com/misc/Borders_1stDaySchedules.pdf
Simultaneous with its bankruptcy filing, Borders said it will
undertake the elimination of certain of its unprofitable stores.
The Company has begun discussions with experienced liquidators
and has begun a bidding process, which culminated with the
selection of a stalking horse bidder.
Restructuring Goals
Borders believes that the bankruptcy proceedings are the best
avenue to restructure its debts and eliminate burdensome costs.
The Company avers that its post-bankruptcy operational strategy
will focus on five key areas:
(1) continuing the expansion and enhancement of the Borders
Rewards Plus Program,
(2) strengthening the company's position as a purveyor of
content by aggressively growing Borders.com and eBook
market share;
(3) expanding the company's overall retail mix to improve
profitability and offset the digital effect;
(4) aggressively reducing costs across the business; and
(5) making strategic investments in IT to improve customer
experience.
DIP Financing
Tiffany Kary at Bloomberg News notes in a February 17 report that
Judge Arthur Gonzalez has granted Borders interim access to at
least $400 million of the proposed $505 million financing
facility from lenders led by GE Capital. Judge Gonzales,
according to Bloomberg, first demanded that a budget for Borders'
intended use of the loan be filed with the Court.
In court filings, Borders said that it needs the additional
financing to pay current and ongoing operating expenses.
As of press time, the Court has not ruled on Borders' request for
permission to commence closing sales for 200+ of its
underperforming stores, Bloomberg relays.
Post-Bankruptcy Payments & Obligations
Within the 30-day period after their bankruptcy filing, the
Debtors estimate these payments to be paid to their employees,
executives and consultants:
Payments to Employees $20,514,995
Payments to Officers $850,662
Payments to Financial &
Business Consultants $0
The Debtors also estimate these cash receipts and disbursements
for the 30-day period after their bankruptcy filing:
Cash Receipts $230,000,000
Cash Disbursements $138,000,000
Net Cash Gain $92,400,000
Unpaid Obligations $135,500,000
Unpaid Receivables $173,000,000
Winners & Losers in the Borders Bankruptcy
Borders' bankruptcy filing comes a month after the Company
revealed that it was exploring the possibility of a restructuring
process under Chapter 11.
Mae Anderson of The Associated Press relates that entities that
stand to gain from the Borders bankruptcy are Barnes & Noble,
Amazon.com, and Books-A-Million.
AP notes that Credit Suisse analyst Gary Balter said the
announced Borders store closings could tip up Barnes & Noble's
sales by 6%, and if Borders goes out of business entirely, that
can translate to a 26% increase in Barnes & Noble sales.
Consumers who don't head to Barnes & Noble will likely head to
Amazon.com, Forrester Research analyst Sucharita Mulpuru said,
according to AP. Alabama-based Books-A-Million, the third
largest U.S. bookstore chain, might also get its share of the
market as a result of Borders' tumble into Chapter 11.
Among those who stand to lose in the Borders bankruptcy are the
Company's employees, stockholders and publishers, AP points out.
The report relays that 6,000 Borders workers are expected to lose
their jobs while the Company strives to restructure. AP adds
that investor William Ackman and Borders CEO Bennett Lebow, each
with about a 15% stake in the Company, also stand to see their
investments vanish. Publishers already felt the crunch when
Borders ceased vendor payments in December. Earlier, publisher
John Wiley & Sons Inc. disclosed it recorded $9 million in bad
debt because of non-payment by Borders, AP cites. With Borders
set to close 200+ stores, publishers will lose more retail space
to feature their products.
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