Friday, January 28, 2011

Borders Gets Tentative Financing Commitment, But Has Lots of Hurdles

Faced with publisher reservations about its proposal to exchange missed payments for notes, Borders announced Thursday evening that GE Capital has agreed to provide the company with $550 million in new financing, but the deal is subject to a number of conditions, including receiving financing  from publishers and other vendors to the tune of $125 million. As reported in PW Daily Thursday morning, publishers remain extremely reluctant about accepting Borders' proposal and one publisher said the announcement had not changed his mind about rejecting the offer.  And for the first time in public, Borders said it hasn’t ruled out the possibility of bankruptcy.

In a statement, CEO Mike Edwards said that while Borders believes refinancing is the most practical route to revitalize the company “given the current environment surrounding Borders, and in order to assure that the company can pursue its efforts to position itself to properly implement its business plan, it is prudent as well for Borders to explore alternative avenues, including the possibility of an in-court restructuring.”  Borders wasn’t commenting beyond the release, but the wording suggests that a  prepackaged bankruptcy is a possibility.

In further comments, Edwards said that the company believes the commitment from GE positions the company to move forward, “and expects to demonstrate to its vendors how their support for Borders will be to the benefit of the company, the vendors, and their shared consumers.” Borders  said it needed an answer from publishers to its proposal before the end of January, and  the announcement is a clear indication it has yet to win publisher approval. “We are confident that whatever path Borders pursues to implement its strategy, we will be able to count upon the support of our vendors, who understand the critical role a strong Borders provides to the reading public,”  Edwards said.

The commitment by GE is subject to a host of conditions beyond reaching a deal with publishers “on terms satisfactory to GE.” Other conditions include completing a store closure program to be implemented as soon as possible; the successful syndication of $175 million of the senior credit  facility with other lenders;  GE’s completion of its business, financial and legal due diligence; the negotiation and execution of definitive financing documents; and the absence of any material adverse change in the company’s business or financial condition; and other customary conditions.

If it receives the financing, Edwards said Borders will be able to reposition itself as national retailer of books and other related products.  The company’s new business plan will focus on five areas, none of them surprises to publishers: continuing to expand and enhance the Borders Rewards Plus program; strengthen the company’s position as a purveyor of content by aggressively growing Borders.com and e-book market share; expand and enhance the company’s overall retail mix, including non-book offerings, to improve profitability and offset the digital effect;aggressively reduce costs across the business, including costs in the supply chain network and store portfolio; make strategic investments in IT to improve the customer experience.

*From an article by Jim Milliot in PW Daily1/28/11
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