By Joseph Checkler and Eric Morath
Of DOW JONES DAILY BANKRUPTCY REVIEW
Borders Group Inc. (BGP) filed for Chapter 11 protection in New York on Wednesday morning, a month after the struggling operator of the Borders and Waldenbooks book chains warned it may have to restructure the company in bankruptcy court.
On its petition with the U.S. Bankruptcy Court in Manhattan, the Ann Arbor, Mich., company said it had assets of $1.28 billion and liabilities of $1.29 billion as Dec. 25, 2010.
Borders' five largest unsecured creditors are the book publishers Penguin Putnam Inc., Hatchette Book Group, Simon & Schuster Inc., Random House and Harper Collins Publishers.
Borders had sought to avoid bankruptcy by striking a tentative deal with GE Capital over a new $550 million secured line of credit. But the retailer first had to hit certain benchmarks, such as negotiating more favorable store leases with its landlords and finding other lenders to take on $175 million of the credit line.
The deal also required Borders to raise another $125 million in junior debt, which the retailer sought to do by asking the publishers whose books stock its shelves to forgive unpaid bills in exchange for debt that Borders could then repay. But most publishers haven't welcomed the overture.
To boost its liquidity, Borders last month announced it would delay payments to its vendors, landlords and other key creditors. But the retailer had acknowledged that and other cost-cutting moves might not be enough to keep it out of Chapter 11, so it also announced that it was exploring an "in-court restructuring."
To that end, Borders reportedly entered into talks with of Bank of America Corp. (BAC) and General Electric Co.'s (GE) financing arm over up to $550 million in bankruptcy funding.
Brick-and-mortar booksellers like Borders, second in size only to Barnes & Noble Inc. (BKS), have struggled to compete with Internet-only retailers such as Amazon.com Inc. (AMZN) and the advent of digital books and e-readers.
In the past year, Borders has tried to shift its focus away from its physical presence by halting expansion plans and identifying unproductive stores for closure. At the same time, the company reworked its customer loyalty program, overhauled its Web site and introduced a digital book store.
Last March, Borders and its lenders struck a deal to amend its debt. Lenders led by Bank of America agreed to provide a $970.5 million secured revolving credit facility, while an affiliate of liquidation firm Great American Group led another lender group behind a $90 million secured term loan.
The retailer in July sold off its Paperchase line of stationery, cards and gifts for $31.2 million, the bulk of which--$25 million--it was required to put toward reducing its debt under a $90 million term loan facility.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection)
-Jacqueline Palank and Mike Spector contributed to this report.
-By Joseph Checkler, Dow Jones Newswires; 212-416-2152;email@example.com