Borders Declares Bankruptcy

Industry insiders have been biting their nails this week waiting for Borders to declare bankruptcy. And this morning, it happened. And just like the death of a sick relative or the inevitability of a dreaded presentation, no matter how prepared for it we are, it still hits us hard.

Publishers Lunch sent out a special email this morning with the details:

Borders formally filed for Chapter 11 bankruptcy protection in a Manhattan Federal Court, listing total debt of $1.29 billion and supposed assets of $1.275 billion. Among the top 30 unsecured creditors listed in the filing, book publishers and distributors are owed roughly $230 million (see below for the full list).

The bookseller says in an announcement that it "has received commitments for $505 million in Debtor-in-Possession (DIP) financing led by GE Capital, Restructuring Finance. 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." For customers, they expect to honor the Borders Rewards program, gift cards and other customer programs and they expect "to make employee payroll and continue its benefits programs for its employees."

The company says they had 642 stores open as of January 29. In their press release, they say they expect to close "approximately 30 percent" of those stores, or roughly 200 locations, "in the next several weeks."

Ken Hiltz has been named senior vice president - restructuring of the company. Named advisory firms include Jefferies & Company for financial and restructuring services; DJM Property Management for lease and real estate advisory services; and consultants AP Services for interim management and restructuring services. The company intends to "finalize and implement a store closure, store liquidation and lease modification plan" as already discussed and approved by their board.

President Mike Edwards addresses the obvious in the release, "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." Elsewhere, the announcement perpetuates the company's illusion that they are but one more step away from a turnaround into "a stronger and more vibrant book seller."

The publisher creditor list comprises:

Penguin $41.1 million

Hachette Book Group $36.9 million

Simon & Schuster $33.75 million

Random House $33.5 million

HarperCollins $25.8 million

Macmillan $11.4 million

Wiley $11.2 million

Perseus $7.8 million

F+W Media $4.6 million

Houghton Mifflin Harcourt $4.4 million

Workman $4 million

McGraw-Hill $3.1 million

Pearson Education $2.8 million

NBN $2 million

Norton $2 million

Zondervan $1.9 million

Hay House $1.7 million

Elsevier Science $1.6 million

Publications Intl. $1.1 million

Readers will recall that we recently tried to frame the coming Borders bankruptcy in the context of the AMS bankruptcy from late 2006. In that filing, the 40 largest publisher creditors were owed $220 million, topped by Random House, which was owed $43.3 million.

See the post on Publishers Marketplace HERE

Now, that's A LOT of dough.

It's intriguing (and a little funny in a sad way) to me how no one outside of the book biz knew this was going on. Inside, we've all been watching Borders steadily decline for years, their debt piling up exponentially, but they've still been a significant part of our business. Somehow they were able to cover it up for the public, a big secret that I wouldn't have expected to be kept so quiet for so long. But under wraps it is no longer.

Borders put out some extra details today too, claiming that "business operations continue as normal." But while their rewards program remains in effect, stores are staying open, online orders are still being processed, etc., nothing is really "normal" about this occurrence. And I can't help but think that this will go one of two ways: either shocked consumers will be motivated by their upset and rush to Borders, trying to help pick up the slack and get the company out of the red zone, or they will be outraged that Borders let it all get so out of control and pull their loyalty completely.

I'm hoping for the former, but I guess my cynical nature is expecting more of the latter...

What effects do YOU think this big news will have on the industry?
RBtL wants to know!