ANN ARBOR ? Borders Group filed for Chapter 11 bankruptcy protection Wednesday in a Manhattan court, a month after it warned it may be forced to restructure. Borders said it could close up to 30 percent of its 644 stores nationwide and in Puerto Rico in the coming weeks.
In its bankruptcy petition, Borders listed assets of $1.28 billion and liabilities of $1.29 billion as of Dec. 25. Borders’ five largest unsecured creditors are the book publishers Penguin Putnam Inc., Hachette Book Group, Simon & Schuster Inc., Random House and Harper Collins Publishers.
“It has become increasingly clear that in light of the environment of curtailed customer spending… and the company’s lack of liquidity, Borders Group does not have the capital resources it needs to be a viable competitor,” said Borders Group President Mike Edwards in a statement.
The Chapter 11 filing will allow Borders to access new capital and reorganize its operations, Edwards said. He said Borders has lined up a $505 million loan from GE Capital to fund its operations while in bankruptcy. Access to such a loan is subject to court approval.
On its website Wednesday, Borders told customers that it will continue business operations “as normal.” All reward programs and gift cards will be honored, the company says.
The filing comes after Borders unsuccessfully sought to avoid bankruptcy by striking a tentative deal with GE Capital for a new $550 million secured line of credit. But the retailer first had to hit certain benchmarks, such as negotiating more favorable store leases with its landlords and finding other lenders to take on $175 million of the credit line.
The deal also required Borders to raise another $125 million in junior debt, which the retailer sought to do by asking the publishers whose books line its shelves to forgive unpaid bills in exchange for debt that Borders could then repay. But most publishers haven’t welcomed the overture.
To boost its liquidity, Borders last month announced it would delay payments to its vendors, landlords and other key creditors. But the retailer had acknowledged that and other cost-cutting moves might not be enough to keep it out of Chapter 11, so it also announced that it was exploring an in-court restructuring.
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