More bad news from Borders Books

This isn't what you want to hear from a bookseller, especially right after the holiday season. Good luck to everyone in Ann Arbor and out in the stores.

From Publishers Lunch:
The Grinch Goes to Borders, As Major Vendor Payments Are Delayed
Borders warned investors on December 9 that they faced a potential "liquidity shortfall" in early 2011 and within the last 24 hours that warning has turned into reality for some of its major supporters--including big publishers. People familiar with the communications tell us that Borders ceo Mike Edwards contacted some publishers recently to indicate that Borders would be postponing payments due, now that the holidays are over. The Borders executive team is due in New York in early January, we are told, both to discuss next steps with major vendors and to present their case to banks and investors.

According to the company's December SEC filing, vendor credit remains essential to the company's operations, accounting for "approximately 44 percent of our inventory." They noted at the time "we are working closely with vendors to maintain acceptable levels of payables but there can be no assurance that our current vendor credit levels will be maintained." So far, we are told the company has not indicated when they intend to make their accounts payable current, or even whether they will be able to make payments in full or will propose alternate arrangements.

A statement provided to Publishers Lunch by company spokesperson Mary Davis at least implies that Borders may seek to negotiate amounts due as they "restructure" what they owe to publishers. The company told us:

"In response to media inquiries, Borders Group Inc. today stated that, as the company previously reported, it is in discussions regarding the potential reinfancing of its existing senior credit facilities. As part of this potential refinancing, Borders has determined that it is necessary to restructure its vendor financing arrangements and is delaying payments to certain of its vendors.

"Borders has notified these vendors and will be working with them to restructure their arrangements with the company. Borders stated that there can be no assurance that it will be successful in refinancing its senior credit facilities or restructuring its vendor financing arrangements. As the company previously reported, the absence of the refinancing could cause the company to violate the terms of its existing credit agreements in the first calendar quarter of 2011 and the company could experience a liquidity shortfall."

Davis declined to comment beyond the statement. While it is a different situation, publishing people will remember with discomfort that Advanced Marketing Services filed for bankruptcy protection right after the holiday selling period in 2007, filing on December 29 (and subsequently liquidating rather than reorganizing.)

Separately, publishers have told us recently that Borders indicated that approximately 10 to 17 more stores are due to close by the end of the January (in addition to the closures already reported by us, set to close by January 7). Davis said "we are closing a few additional stores in January, but not disclosing the total number at this time. We will share that information in our next quarterly release as we usually do."


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