Borders May Close Up to 51 More Stores to Avoid Defaulting On Latest Loans

As potential bidders emerge for more than 200 of Borders' superstores in a deal the company hopes will close in the next two to four weeks, the retailer may need to close an additional 51 stores and liquidate assets to avoid defaulting on their debtor-in-possession loan in the meantime. According to a motion filed in court Thursday morning, the move may result in worse terms for creditors, since the closed stores would not be available for sale to a bidder--and at least some of them are stores that "buyers have indicated that they also wish to purchase." Though Borders hasn't underscored the human cost of their business failure in the past, now that it serves their ends they also declare the additional closings would result in "a significant loss of jobs."

A showdown like this has been looming from the start, given Borders' financing terms, exacerbated by their significant and continuing losses. (As we reported last week, Borders has just $85 million in available financing left to use from the initial $500 million granted by GE Capital.) Referring to themselves in the abstract as the "debtors," Borders' lawyers tell the court they face an unfortunate dilemma: "This leaves the Debtors with a Hobson's choice: the Debtors can proceed with store closing sales at these stores under these unfortunate circumstances or, if they refuse to do so, risk being placed into default."

Borders claims in the filing they have received extensions already of the deadline to accept or reject leases by September 14 on 365 stores, or about 90 percent of those still open, and believe that, with additional time, "they can obtain extensions at many of the remaining 51 locations." But they admit, however, that they "will not be able to obtain extensions for at least some of their locations." Borders also says that most of the stores in question are "among the most profitable in the portfolio or have leases which are under market." Borders says the only reason why it hasn't assumed these leases is because "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."

What Borders really seems to want is a grace period from their lenders, until a July 21 hearing at which the company would hope to be seeking approval for a sale. The "lenders are considering the proposal...and good faith negotiations are ongoing," Borders writes in their motion. In the meantime the company says they would have to pick a liquidator by June 16 and begin store closings by June 22 to avoid defaulting on their loans.

Whether all these stores will go on the block or Borders is campaigning for the best deal is an open question. A spokeswoman for Borders told the WSJ, "While the motion references 51 store locations, we expect a far smaller number to actually close." The company, she said, is "actively working with our landlords to resolve the issue," as lease negotiations affect the terms with lenders.

An unofficial employee message board is circulating a list of the 51 affected stores, asserting that up to a third are "definitely" closing, some are ready to sign a new lease and the remainder are in negotiations for new leases. Among those on the list are the remaining two stores in Manhattan, airport stores at JFK, Detroit, Indianapolis, Logan International and BWI, and three stores in Hawaii.

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