Borders’ troubles are deepening. They just announced that they would not be paying vendors in January and will not be paying their rent as well. A little knowledge of bankruptcy law is always helpful. Borders’ unwillingness or inability to pay rent is a very dark sign. Usually landlords are the first to get paid. (Vendors are usually the last.) As the unpaid creditors line up, it increases the chances of some of them going to court and forcing an involuntary bankruptcy. To simplify a complex legal issue, as few as 3 creditors can petition the courts to initiate a bankruptcy hearing. As this is being written, Borders’ stock is down 9 cents. This doesn’t sound like much, but when the price is at 76 cents per share, it translates to being down 10%.
Here is an update on Borders from Publishers Marketplace today:
Borders officially announced Sunday night that it will not be sending vendors payments due at the end of January either. And they indicate that publishers are not the only ones being stiffed, saying they are also “delaying additional payments to landlords and other parties.”
They say the non-payment (which they call a “delay” in the press release, but that’s what you call it when you intend to pay someone in full a little while later, which is not what is proposed) “is intended to help the company maintain liquidity while it seeks to complete a refinancing or restructuring of its existing credit facilities and other obligations.” The statement also adds, “Borders emphasized that it understands the impact of its decision on the affected parties, but that the company is committed to working with its vendors and other business partners to achieve an outcome that is in the best interest of Borders and these parties for the long-term.”
From a practical perspective, anyone who was continuing to ship goods to Borders has likely learned their lesson, and it increases the likelihood of a bankruptcy filing–whether forced or voluntary–if the bookseller does not meet the many conditions of its new financing arrangement shortly.