Borders' debt load forces bankruptcy

NEW YORK - Borders Group Inc., which helped pioneer superstores that put countless mom-and-pop bookshops out of business, filed for bankruptcy protection Wednesday, sunk by crushing debt and sluggishness in adapting to a rapidly changing industry.

The 40-year-old company plans to close about 200 stores during the next few weeks. All will be superstores, Borders spokeswoman Mary Davis said. The company also operates smaller Waldenbooks and Borders Express stores.

Stores in the Philadelphia area slated to close are in King of Prussia and Langhorne.

Clearance sales could begin as early as this weekend, according to documents filed with U.S. Bankruptcy Court in New York. Borders said it was losing about $2 million a day at the stores it will close.

Cautious consumer spending, negotiations with vendors, and a lack of liquidity made it clear Borders "does not have the capital resources it needs to be a viable competitor," Borders Group Inc. president Mike Edwards said in a written statement.

Borders plans to operate normally and honor gift cards and its loyalty program as it reorganizes.

The company will receive $505 million in debtor-in-possession financing from GE Capital and others to help it reorganize.

According to the Chapter 11 filing, Borders had $1.28 billion in assets and $1.29 billion in debts as of Dec. 25.

It owes tens of millions of dollars to publishers, including $41.1 million to Penguin Putnam, $36.9 million to Hachette Book Group, $33.8 million to Simon & Schuster, and $33.5 million to Random House.

It's significant that Borders could not reach an agreement with creditors and file a "prepackaged bankruptcy," said Nejat Seyhun, a bankruptcy expert at the University of Michigan. It could be a sign that creditors do not believe Borders will be a "viable operation," Seyhun said.

Activist investor William Ackman, whose Pershing Square Management Co. has a nearly 15 percent stake in the company, also stands to be a big loser. Shareholders are often wiped out in a reorganization.

The filing was expected, but it is far from clear whether it will be enough to save the company.

Big-box bookstores have struggled with intensified competition as books have become available in more locations, from Costco to Wal-Mart, online sales grow, and electronic books gain in popularity.