Borders asks for ABL extension

This article is provided to FT.com readers by Debtwire—the most informed news service available for financial professionals in fixed income markets across the world. www.debtwire.com

--------------------------------------------------------------------------------------------------------

Still smarting from a CEO defection and a 10% workforce reduction, Borders Group has asked lenders to extend the maturity of a USD 1.125bn asset-based loan due July 2011, three investors familiar with the matter told Debtwire. Loan holders replied with demands that the book retailer repay some of the USD 360m outstanding on the loan first, said one of the investors and an ABL lender.

The amend and extend proposal includes a stipulation that Borders raise at least USD 75m of new funding for the paydown but that could prove a costly proposition. It would also boost pricing on the existing ABL to Libor+ 400bps in exchange for pushing the maturity by four years.

Lead arranger Bank of America approached investors in mid-February to gauge interest in a new USD 100m second lien offering to finance a partial buyback of the revolver. They floated eye-watering price guidance of 14% for the first lien/second lien hybrid and emphasized to would-be buyers the instrument’s resilience in a bankruptcy scenario, said two of the sources familiar.

“They are trying to get you comfortable with [recovery value in] a potential bankruptcy,” another of the investors said.

Given Borders’s revenue deterioration and headline risk, Bank of America has been telling investors that if the book seller filed for Chapter 11, second lien holders would receive full recovery, said the two sources. The bank cited historical liquidation values for book retailers to illustrate the full recoveries, said the second investor.

The collateral package for the new offering includes a first lien on the retail chain’s intellectual property and a second lien on the collateral backing the ABL, said the first investor and the ABL lender.

In addition to the early paydown, Borders offered to lower the full amount of the ABL by 20% to USD 900m, said the second investor familiar and the ABL lender. As of 31 October, Borders had USD 360m of borrowings and USD 215m of available on the USD 1.125bn facility, based on inventory and credit card receivables, according to its most recent 10-Q. The company also reported USD 32.8m of cash.

The Ann Arbor-based bookstore chain has struggled over the last several years as retail outlets such as Amazon and behemoth Walmart have systematically stolen market share from the bricks-and-mortar incumbent. For the 11-week holiday period ended 16 January, sales plunged 13.7% year-over-year.

In late January, the company announced that its CEO Ron Marshall had resigned after about one year at the helm. Shortly afterwards, the Ann Arbor-based chain announced it was laying off 10% of its corporate workforce as part of its cost-cutting initiatives.

As previously reported by this news service, the company has adopted a selective approach to paying vendors in a timely fashion and has alienated certain publishers by sending back large quantities of books unsold. Some vendors approached Lowenstein Sandler to look into the matter but never officially retained the law firm.

On 1 April, the bookseller’s USD 42.5m loan from Pershing Square Capital Management will mature. In early February, activist investor William Ackman of Pershing told CNBC that a Chapter 11 filing is a “low probability:” event for the nation’s second largest book chain.

Borders common shares traded today at USD 1.54, up 0.03.

According to the credit agreement backing the ABL, a 1.1x fixed charge ratio kicks in if the retailer’s borrowings exceed 90% of the maximum amount permitted. Borders would not currently be in compliance with the fixed charge ratio if it were tested, SEC filings show.

Borders Group declined to comment. Calls to Bank of America were not returned.

--------------------------------------------------------------------------------------------------------

For more information or to inquire about a trial please email sales@debtwire.com or call Americas: +1 212-686-5374 Europe: +44 (0)20 7059 6113 Asia-Pacific: +852 2158 9731