Borders Takes Another Giant Step toward Bankruptcy

Does this U.K. Borders represent the future for U.S. stores?

According to the Wall Street Journal, Borders confirmed Sunday that last month's decision not to pay the publishers who supply the chain with inventory (on credit) was no fluke.  Now it appears that the publishers will not be paid for January either.

The No. 2 U.S. bookstore chain said the move was intended to preserve liquidity as it works to restructure its finances. The company said it "understands the impact of its decision on the affected parties," but wants to work with creditors and others to bolster its prospects.

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Borders is negotiating with financial institutions for so-called debtor-in-possession financing that would keep it operating in bankruptcy court, said people familiar with the matter. Companies often hold such talks as a precaution, but they represent the surest sign yet that Borders is seriously weighing a Chapter 11 bankruptcy filing.


To avoid bankruptcy, Borders needs to get concessions from publishers, renegotiate with landlords, and persuade other lenders to take on $175 million of the proposed $550 million credit line from GE Capital. One person familiar with the matter said it was a "long shot" for Borders to get all those pieces in place.


"It seems very likely, if not inevitable, that Borders will have to file bankruptcy," said Donald Workman, who heads the bankruptcy practice at law firm Baker & Hostetler, and isn't involved with the negotiations.

At this point, most publishers have seen nothing that makes them believe that Borders will survive the company's cash flow crunch. The question for them is now more likely to be how much of their own product and bottom line they are willing to risk that Borders management will ever get things right again.

It is starting to look like Barnes & Noble will soon be the only major bookstore chain operating in the U.S. What are the odds?  Do you feel lucky, book publishers