Borders may have to close some of its best stores

By Nick Brown

NEW YORK (Reuters) – Bankrupt Borders Group Inc said it may have to close up to 51 more stores — including some of its most successful — as the shrinking bookstore chain struggles to avoid defaulting on a bankruptcy loan.

In court papers filed Thursday in U.S. Bankruptcy Court in Manhattan, the company asked permission to liquidate the stores in case it cannot extend deadlines for negotiating with its landlords.

The closures would reduce the number of Borders stores to about 350, down from the 642 stores it had when it filed for bankruptcy earlier this year.

Borders has until Sept. 14 to decide whether to maintain or break the leases at the stores, and says it is trying to extend that deadline. But under the terms of a $505 million bankruptcy financing loan from General Electric Co’s GE Capital, Borders must initiate closure proceedings now, in case it is unable to work out an extension.

Borders will hold an auction June 16 to select a liquidating agent to hold going-out-of-business sales at the stores, some of which are among its “most profitable” or have leases that are under market rates, according to court papers.

A spokeswoman for the company said Borders expects it will be able to negotiate lease extensions at the majority of the stores.

“We’re working with both our lenders and our landlords,” spokeswoman Mary Davis told Reuters.

The company does not have a sense of how many of the stores will actually close, Davis added.

“It’s fluid and ongoing, and premature at this point to guess,” she said.

Included in the potentially doomed group are stores in New York City’s Pennsylvania Station, John F. Kennedy International Airport and Columbus Circle, according to the filing.

Borders, which helped pioneer the concept of book superstores, filed for bankruptcy in February after years of falling sales made it impossible to manage its debt load. It has already closed 226 stores, and is attempting to find buyers for the approximately 400 that remain. Private equity firms Gores Group and Najafi Cos have surfaced as potential bidders, according to recent reports in the Wall Street Journal

Borders voiced some frustration over the tight timetable for the 51 stores in question, saying it has tried to convince lenders to hold off on demanding closure proceedings until July 21, when a hearing is scheduled to consider a possible sale of the company’s entire business.

The closures would create “significant” job losses, and shuttering some of its more thriving stores could hinder its ability to find a buyer, Borders said in its filing.

The case is In re Borders Group Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-10614. (Editing by Gerald E. McCormick)