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 Mary Davis 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 William Ackman offered to finance a Borders bid for its much larger rival, Barnes Noble Inc. Borders has been reporting losses for years, but its results worsened in recent quarters with heightened competition from Barnes 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 Edwards 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.
Davis 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.