Is Borders bankruptcy-bound?

The bookseller faces a potential liquidity crisis, which could lead to a Chapter 11 filing.

By TheStreet Staff Jan 4, 2011 3:58PM

thestreetBankrupt © Hill Street Studios/Blend Images/Getty ImagesBy Jeanine Poggi, TheStreet


Is Borders (BGP) eyeing a bankruptcy filing? If the bookseller's latest moves are any indication, the company could be headed precisely in that direction, according to James V. McTevia, a turnaround expert and managing member of McTevia & Associates.


On Monday, The Wall Street Journal reported that one of Borders' major suppliers, Rowman & Littlefield Publishing, is temporarily halting the shipment of books to the retailer. The publisher's CEO told the Journal that his company will not ship to Borders until it receives more information on the bookstore's payment plans.


Borders said at the end of December that it may have to delay payments to some of its vendors as it attempts to negotiate new loan terms.


"Being unable to pay your bills suggests a serious cash crisis and is generally a precursor to bankruptcy," McTevia says. "Borders is clearly exploring that option."

Borders has also warned that delaying payments may result in a violation of the terms of its existing credit agreements in the early part of the year and that it could experience a liquidity shortfall.


On Monday, Borders also announced the resignation of two executives, Thomas D. Carney, the executive vice president, general counsel and secretary; and D. Scott Laverty, a senior vice president and the chief information officer. Reasons for their departures were not provided.


"We think it is likely that Borders will violate the terms of some of its credit agreements early in 2011, raising questions about its long-term viability," wrote Michael Souers, an analyst at Standard & Poor's. "While efforts to restructure its debt are taking place, we see onerous terms even if successful."

One of the few ways Borders can save itself is to merge with rival Barnes & Noble (BKS), McTevia says.


Barnes & Noble has been slightly more successful than its peer in attempting to compete in the rapidly changing book industry. On Monday, the No. 1 bookseller said that same-store sales for the nine-week holiday period jumped 9.7% as its Nook e-reader became its best-selling item of all time. This topped its prior forecast for a gain of between 5% and 7%.


Barnes & Noble put itself up for sale in August, and in December, hedge fund manager William Ackman, who owns a 37% stake in Borders, said he was prepared to back a cash merger deal. Ackman proposed that Borders purchase Barnes & Noble for $16 a share.


"People who say the two shouldn't merge aren't looking at the whole picture," McTevia says. "If a merger doesn't take place, it leaves two giant companies out there trying to compete in an industry that is going through major changes."


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Jan 4, 2011 5:26PM

Instead of acquiring  B&N they should of found new  CEOs and Directors!


Look at how Borders killed Waldenbooks, which was busier then their own stores.


Personally, I would ressurect  Waldenbooks and turned Borders, with a new name, into a used bookstore for that years hot sellers.


I knew of a book recycler in  Burbank who would buy Best Sellers for $2-5 and sell them for $8-15.  And their turnover was impressive.


Or, go the POWELLs route and sell used along with new...


Bottom line, is change the mgmt. Something GM should of done long ago.

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