More Bad News From Borders


 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.

The impact of not paying rent in particular may impose a timetable on how much longer Borders has to plead for concessions before seeking court protection. While we have no direct knowledge of their lease conditions and potential grace periods for payment of rent, and laws do vary from state to state, commercial landlords are generally able to petition for eviction within about two weeks after provided for non-payment deadlines.
According to a memo on an employee web site, Borders workers were told by management to expect inquiries from unpaid landlords and vendors as well as media and customers and asked to “politely but firmly state that all questions are being handled by the corporate office and refuse to offer any other comments.” They were instructed to keep the media from photographing or interviewing within company stores, but the company also noted: “Do not suggest this, but it is acceptable for media to photograph/film the exterior of the store if they do so on public property, such as your parking lot.”

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