Borders Files for Chapter 11
Feb 16th 2011 11:59AM
Updated Feb 16th 2011 12:04PM
The inevitable has finally happened: Borders Books filed for Chapter 11 bankruptcy protection today. The nation's second largest bookseller plans to close hundreds of stores and reduce costs in the hopes of emerging a smaller, but intact company.
We've been writing about it for months now, and the causes are many, but simply put, Borders failed to get in front of the shift to digital content."It has become increasingly clear that in light of the environment of curtailed customer spending, our ongoing discussions with publishers and other vendor related parties, and the company's lack of liquidity, Borders Group does not have the capital resources it needs to be a viable competitor and which are essential for it to move forward with its business strategy to reposition itself successfully for the long term," said Mike Edwards, Borders Group president in a statement.
Borders began delaying payments to vendors in late 2010, and owes tens of millions of dollars to publishers. The chain has secured commitments for $505 million in Debtor-in-Possession (DIP) financing led by GE Capital. "This financing should enable Borders to meet its obligations going forward so that our stores continue to be competitive for customers in terms of goods, services and the shopping experience," Edwards said.
But moving forward for Borders means closing 200 superstores, or about 30% of its store base. The DIP financing allows Borders to continue to meet payroll and fund benefits, except of course for those who will lose their jobs in the restructuring.
Borders gift card holders needn't worry though. According to the company, these will continue to be honored in stores and online.