Borders bailout carries store closure clause

Borders Group has secured a $550 million financial lifeline from GE Capital that will enable it to maintain operations, but there are plenty of strings attached, which stands to reason given GE has put half a billion dollar at risk.

Among the stipulations GE required is that Borders finalize a store closure program and close the identified units as soon as practicable. The company operates 674 stores under the Borders, Waldenbooks, Borders Express and Borders Outlet names and an additional 671 Borders branded airport stores, according to the company’s third quarter report for the period ended Oct. 31, 2010.

In addition to an undetermined number of stores closings, the $550 million credit facility requires Borders to obtain $125 million of financing by converting vendor payables to debt, a move deemed necessary to “provide Borders with the financial flexibility and an appropriate level of liquidity to move forward with its strategy to reposition its business model and the Borders brand.”

The GE credit facility will mature in 2014 and replaces the company’s existing revolving senior credit and term loan facilities.

"We are pleased that, after a thorough review of our business strategy and related long-term potential by GE Capital and outside experts, GE Capital is committing to put in place a new senior financing facility for the company,” said Mike Edwards, Borders Group president. “This is an important step for Borders toward implementation of its comprehensive plan to reposition itself as a vibrant national retailer of books and other related products to the consumer. We strongly believe that, based on our business strategy, Borders will be able to transform its business to capitalize on the evolving reading marketplace and perform as a best-in-class destination and shopping experience for consumers.”

The company’s business strategy includes the expansion and enhancement of the Borders Rewards Plus program, aggressively growing Borders.com and e-book market shares, cost reduction, strategic information technology investments and an expansion of non-book product offerings to enhance the product mix.