Borders and Pershing…..A Very Interesting Idea

• Posted by ToddSullivan
• on November 26th, 2008

Still have not listened to the earnings call yet but will get to it. Had to go pick up the 34lb. turkey for tomorrow. Anyway, had this great idea emailed to me today from JB..

“What would happen if Pershing Square guaranteed all of Borders (BGP) debt (maybe for a small fee). The stock would skyrocket wouldn’t it? The reason the stock has been hammered in addition to the slowing consumer/macro environment is b/c of the heavy debt load. Eliminating a major concern should get the equity moving significantly. Keep in mind that all of BGP’s debt is a credit facility with no restrictive covenants until they are 90% borrowed…Considering they have $518mm of an available $1,125mm outstanding it seems awfully flexible in this environment.

Why would Pershing square do this? Well I doubt that they believe that BGP will default on this debt and they would benefit from both a small fee on the guarantee as well as a significant appreciation in their equity holdings. It’s not as if BGP management will stop managing the business prudently and they likely will continue to pull as much costs out of the business as possible and pay down debt on a continuing basis.”

I can’t poke a hole in this…anyone have any comments?

Disclosure (“none” means no position):Long BGP
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