Borders US has filed for Chapter 11 bankruptcy, blaming a decrease in consumer spending, a lack of liquidity and ongoing discussions with publishers.
The widely expected move will mean Borders will try to restructure its business while continuing to trade online and in store. Among the initiatives that it is proposing, which require court approval, is to close around 30% of its underperforming stores.
The retailer emphasised that "the closings were a reflection of economic conditions, cost structures and viability of locations, among other factors, and not on the dedication and productivity of the workforce in these stores."
Borders has received commitments for a $505m Debtor in Possession loan from GE Capital in order to continue trading. This loan is subject to court approval and financial commitments from the lenders.
Mike Edwards, Borders Group president, said: "[The loan] affords Borders the opportunity to move forward in implementing the appropriate business strategy designed to reposition Borders to be a potentially vibrant, national retailer of books and other products."
According to Bloomberg, who quoted from the filing, the retailer has debts of $1.29bn and assets of $1.28bn as of Christmas 2010. Penguin was listed as the largest unsecured creditor with a $41 million claim. Hachette Book Group has a claim of $36.9 million and Simon & Schuster Inc. has a claim of $33.8 million. Random House has a claim of $33.5 million.
The retailer had been locked in discussion with publishers for weeks about receiving interest-bearing notes instead of payment. However, publishers had been reluctant to sign up to the proposal, claiming Borders' future strategy had been unclear.
Edwards said: "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.
"To position Borders to remedy this condition, Borders Group, with the authorization of its board of directors, has filed a petition for reorganization relief under Chapter 11 of the Bankruptcy Code. This decisive action will give Borders the opportunity to achieve a proper infusion of capital in order to have the opportunity to have the time to reorganize in order to reposition itself to be a successful business for the long term."
Borders has 639 stores and employs 6,100 full-time staff and 11,400 part-time employees.