Nathan Bransford - The Forums

Borders found itself painted into a legal corner and was forced to file for approval to close 51 of its most profitable stores. The bankruptcy court found no option except to grant that approval.

The legal corner is a bit complicated to describe. I'll try to lay out the pieces.

1. Borders leases all of its stores, mostly on very-long-term leases.
2. One of the big reasons that Borders filed Chapter 11 was to be able to get out of some of the worst leases.
3. In March, Borders was given until September 14th to decide which leases to reject and which to keep.
4. Borders' "Debtor In Possession" financing requires that Borders begin store closing sales 13 weeks before the reject/keep decision date (to allow time for the Going-Out-Of-Business sale). For the September 14th date, Borders must begin store closing sales by June 22.
5. Borders was given approval to negotiate delayed decision dates with the landlords — for those stores they haven't already decided to close and reject the leases, of course.
6. Borders successfully got delayed decision dates from the landlords on most of its "not yet decided to be closed" stores — 365 of them.
7. Landlords of 51 of Borders stores have not (yet) approved a delayed decision date.
8. In many of those 51 cases, Borders is paying very low lease rates, and the landlords probably would like to see Borders leave so they can re-lease the properties at higher rates.
9. It would seem that the simple solution is for Borders to say, "We choose to keep those 51 leases," which they very much want to do.
10. Unfortunately, "various creditor constituencies have indicated that they would oppose any such assumption outside of the context of a sale of the business as a going concern or confirmation of a plan of reorganization." In other words, the creditors are seriously concerned that Borders might not survive, in which case the kept leases (on empty stores) will suck away what little money remains to be distributed to the creditors during liquidation.
11. Therefore — unless a sale of the company happens very quickly — come June 22, Borders must begin store closing sales at those stores that still refuse to grant an extension.

Wow - I find myself thinking the landlords should give Borders a break - don't they know the corporation is in trouble? But I suppose that's not the way the business world works!

Thanks for explaining this so carefully, Doug!

Borders has negotiated extensions of the lease reject/keep deadline with 11 of the 51 stores mentioned above. 40 stores remain on the list, and of course Borders is working to negotiate extensions with all of them before the June 20 hearing (that's this coming Monday). As it currently stands, store-closing sales would have to begin at those 40 stores on June 22, one week from today.

PaidContent is reporting that Borders is close to working a deal to relax the 13-week rule imposed by its credit line. That would give it some breathing room on closing those 40 profitable stores.

I'm curious how that would work. The 13-week rule is to allow 13 weeks for the store closing sale to happen. If the time limit is shortened, the store closing sale will either have to be quicker or abandoned altogether. If there's no store closing sale and Borders ends up not keeping the lease, Borders would have to move all stock and fixtures out of the closing store to somewhere else.

So, does that mean Borders wants less than 13 weeks? Or more than 13 weeks?

I'm assuming the latter, give it time to work things out.

I'm also assuming, that although the powers that be are frustrated with Borders, they want it to survive....but maybe I'm wrong there!?

Borders said Friday that they expect to sell the company, to a buyer who will continue to operate it, in July. The schedule outlined for the bankruptcy court is:

• July 1 - "stalking horse" bid announced
• July 19 - company auctioned off by court
• July 22 - sale hearing in court
• July 29 - sale closed

Borders also said that if they're unable to sell the company to a buyer who will continue to operate it, they will begin liquidation. There is no longer any thought of reorganization. Either Borders finds a suitable buyer in July, or Borders will close down entirely.

Added: This is part of a request for an amendment of their bankruptcy rules. The court will rule on this amendment on Wednesday, which is the day that store closing sales will be required to start at any stores whose landlords haven't agreed to extend the reject/accept date for the lease. Borders says that if the court rejects this amendment, they'll begin immediate total liquidation, so the end could come as early as this Wednesday. My guess is that the court will approve the amendment, since it gives an almost date certain of July 22 by which the fate of Borders will be known, and that's only one month.

Borders has filed its 8K report for fiscal May. The report shows that, compared with fiscal April, sales are down 53%, and operating losses are down 44%.

Not a major change except for the sizes of the overall numbers. Still obvious is that Borders continues to sell products for less than what they're paying for them: $81.6 million in sales with $84.3 million for cost of goods sold. This is not the path to wealth, but it's an improvement from April's $101 million in sales with $165.5 million for cost of goods sold (presumably affected by the store closing sales).

Doug Pardee wrote:Borders said Friday that they expect to sell the company, to a buyer who will continue to operate it, in July. The schedule outlined for the bankruptcy court is:

• July 1 - "stalking horse" bid announced
• July 19 - company auctioned off by court
• July 22 - sale hearing in court
• July 29 - sale closed

Borders also said that if they're unable to sell the company to a buyer who will continue to operate it, they will begin liquidation. There is no longer any thought of reorganization. Either Borders finds a suitable buyer in July, or Borders will close down entirely.

Added: This is part of a request for an amendment of their bankruptcy rules. The court will rule on this amendment on Wednesday, which is the day that store closing sales will be required to start at any stores whose landlords haven't agreed to extend the reject/accept date for the lease. Borders says that if the court rejects this amendment, they'll begin immediate total liquidation, so the end could come as early as this Wednesday. My guess is that the court will approve the amendment, since it gives an almost date certain of July 22 by which the fate of Borders will be known, and that's only one month.

This makes me so sad. I spent many a wonderful winter afternoon with my husband in the Washington, D.C. downtown Borders, which might be closed now (I haven't been back in several years), and the Camp Washington, PA Borders near Gettysburg, where I live now. That Borders closed recently. It really breaks my heart. There was something intoxicating about pushing those glass doors open and breathing in the smell of thousands of freshly printed books, the armchairs, the coffee, table after table with all those beautiful covers. I hope libraries don't go the same way.

As I'd expected, Borders' motion for modification of their bankruptcy terms was approved, so they live for another month. What I didn't expect was how unhappy Judge Martin Glenn was about approving the motion. From Publishers Weekly:

I’ll approve it with reluctance. I think you’re getting raped is the best way I can describe it. The other side of the coin is, it’s the only game in town. It’s very close to me saying no.

Some mixed metaphors in there, Judge.

Raped? How is Borders getting raped? I thought Border's ineffiecency was the problem, but now they are the victim?

Very confused. Also sad to hear that Borders is going out of business, although not surprising, still sad.

Borders delivered on its promise to have a "stalking horse" buyout offer by today (July 1). The offer is from Najafi's Direct Brands operation, and is for approximately $435 million, about half of which is the assumption of Borders' debts. Direct Brands is a distributor for pretty much the same kinds of products that Borders is a retailer for — books, DVDs, and music. Direct Brands also owns the Book of the Month Club.

The number of stores being bought hasn't been specified. The remaining stores will be closed by the same companies that closed Borders stores earlier this year. Those store closing sales are expected to start somewhere between July 22 and August 5.

Under the offer, Borders' share of Kobo will be picked up by Direct Brands.

Next: competing bids are due by July 17. If there are any competing bids, an auction will be held July 19. If another bidder wins the auction, Borders will have to pay Direct Brands about $6.5 million to break the current offer.

The good news is that it looks like there's an end in sight, it doesn't include a complete shutdown of Borders, and the likely buyer seems to be knowledgeable in the business. The bad news is that it almost certainly will entail the shutting down of an unknown number of additional stores.

The stalking-horse bid from Direct Brands has been taken off the table, apparently in response to concerns from creditors that there wasn't sufficient assurance that it was a "going concern" bid.

The only bid at this point is by the liquidators. Additional bids will be accepted through Sunday. If any more bids do appear, an auction will be held on Tuesday afternoon. The approval hearing for the sale is Thursday, and if it's a liquidation, the Going-out-of-Business sales should start Friday, one week from today.