Borders delays payments to vendors

December 31, 2010

Borders says it is delaying vendor payments to preserve cash while it tries to

refinance debt

The Associated Press, On Thursday December 30, 2010, 9:20 pm EST

Borders Group Inc. has delayed payments to some of its vendors as the nation's

second-largest bookseller seeks to preserve cash while it struggles to refinance

its debt. The news sent shares down more than 15 percent in after-hours trading.

The amount that Borders can borrow under its credit facility has been reduced

because the value of its inventory has fallen. Borders spokeswoman

said Thursday that the company will work with vendors to restructure their

payment arrangements while it continues to try to refinance its senior credit

facilities.

Borders has said that it is in talks with other possible lenders to replace its

financing and that it may sell some assets to improve its cash position. It

plans to close 16 stores during the fourth quarter, including four by ending

leases early and the rest when their leases run out. But Ann Arbor, Mich.-based

Borders reiterated Thursday that there is no assurance that any refinancing will

come through, and that it could violate terms of its debt in the first quarter

of 2011 and " experience a liquidity shortfall. "

Borders Group Inc. earlier this month reported a wider third-quarter loss and a

steep drop in sales just a few days after activist investor Ackman

offered to finance a Borders bid for its much larger rival, & Noble Inc.

Borders has been reporting losses for years, but its results worsened in recent

quarters with heightened competition from & Noble and larger merchants

including Amazon.com Inc., Wal-Mart Stores Inc. and Target Corp. The growing

electronic book market is another challenge, although Borders has jumped into

that realm, launching its e-bookstore over the summer and adding services to its

website during the third quarter.

CEO Mike said earlier this month that vendors have been supportive and

its stores have plenty of inventory. Whether vendors will continue to ship

inventory without being sure of payment remains to be seen.

declined to comment on which vendors have been contacted about the delayed

payments, or the size of the payments.

Borders shares were at 98 cents, down 18 cents, in after-hours trading. In the

regular session, the stock fell 2 cents to close at $1.16.

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