Succumbing to increased competition from online booksellers, Borders Group (NYSE:BGP) filed for Chapter 11 bankruptcy protection on Wednesday, becoming the ninth-largest retail bankruptcy since 2000.
As a result of the restructuring, the No. 2 U.S. bookstore chain said it plans to shutter about 30% of its stores.
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Borders said it has been able to secure $505 million in debtor-in-possession financing, or DIP, from General Electric’s (NYSE:GE) GE Capital to allow it to continue operating in normal fashion.
Hurt by heavy competition from Wal-Mart (NYSE:WMT) and online retailers like Amazon.com (NASDAQ:AMZN), Borders sales have tumbled in recent quarters.
“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,” Borders President Mike Edwards said in a statement.
Borders said it will continue to serve its customers “in the normal course,” including honoring its Borders Rewards program, gift cards and other customer programs. The company, which has 6,100 full-time staff, said it also “expects to make employee payroll” and continue its employee benefits programs.
Subject to court approval, Borders said it plans to shut down certain underperforming stores – equal to about 30% of its total national store network – over the next several weeks. Borders has 508 namesake superstores and a chain of Waldenbooks stores.
“We are confident that, with the protection afforded under Chapter 11 and with the support of employees, publishers, suppliers and creditors, and the reading public, a successful reorganization can be achieved enabling Borders to emerge from the process as a stronger and more vibrant book seller," Edwards said.
Border’s stock retreated another 16.8% to 19 cents ahead of Wednesday’s opening bell. The stock had already been down 75% this year as of Tuesday’s close amid fears of a bankruptcy.
With $1.28 billion in assets, the Borders bankruptcy marks one of the largest for a retailer in recent memory. It is the largest since last year’s bankruptcy of Greater Atlantic and Pacific Tea Co., or A&P. Kmart’s $14.6 billion 2002 bankruptcy remains by far the largest since 2000, according to Reuters.