Borders Files for Bankruptcy, Will Close Some Stores

Borders Group Inc., the second- biggest U.S. bookstore chain, filed for bankruptcy in New York today after management changes, job cuts and debt restructuring failed to make up for sagging book sales in the face of competition from Amazon.com Inc. and Wal-Mart Stores Inc.

Borders plans to keep operating and restructure with $505 million in so-called debtor-in-possession financing from lenders led by GE Capital, according to a statement. The 40-year-old chain listed debt of $1.29 billion and assets of $1.28 billion as of Dec. 25 in its Chapter 11 petition filed today in U.S. Bankruptcy Court in Manhattan.

The reorganization is only possible if Borders immediately closes 200 of its 642 stores, according to an emergency motion to sell furniture and merchandise filed in Manhattan bankruptcy court today. Sales need to start no later than Feb. 19 to take advantage of the President’s Day long weekend, and another 75 stores may need to close if concessions aren’t won from landlords, the company said.

“Closing the stores right away is essential because the Debtors are losing approximately $2 million per week at the closing stores,” lawyers for Borders wrote in court pleadings.

Market Value

Borders, whose market value has shrunk by more than $3 billion since 1998, racked up losses by failing to adapt to shifts in how consumers shop. Its first e-commerce site debuted in 2008, more than a decade after Amazon.com revolutionized publishing with online sales. The world’s largest online retailer beat it again by moving into digital books with the Kindle e-reader in 2007, a market Borders entered in July.

“Borders Group does not have the capital resources it needs to be a viable competitor,” the company’s president, Mike Edwards, said today in a statement. The bankruptcy will give it “time to reorganize in order to reposition itself to be a successful business for the long term.”

“Instead of leading and being innovative, they were certainly a follower,” said Michael Souers, an analyst for Standard & Poor’s in New York.

Borders, based in Ann Arbor, Michigan, began looking for a cash infusion in December. It said lenders cut its borrowing capacity, and that failure to find replacement credit could lead to a violation of its loan agreements and a “liquidity shortfall” in the first quarter of 2011.