This eliminated any liquidity concerns for at least the next year.
NN ARBOR, Mich., March 30 /PRNewswire-FirstCall/ — Borders Group, Inc. (NYSE: BGP) and Pershing Square Capital Management, L.P. today announced a one-year extension of the $42.5 million senior secured term loan from April 15, 2009 until April 1, 2010. The loan will be extended on its current terms, including an interest rate of 9.8%, which is substantially below market for comparable financing. At the same time, Borders Group is resetting the strike price on Pershing Square’s 14.7 million warrants to $0.65 per share, and the company will allow its option to “put” its U.K. based Paperchase gifts and stationery business to Pershing Square to expire.
“We are pleased to have the continued support of our largest shareholder as we focus on getting our company’s financial house in order,” said Borders Group Chief Executive Officer Ron Marshall. “The extension of the loan gives us some necessary breathing room, which is important in the current economic environment. We are also pleased to retain Paperchase, which is a successful and important business throughout the U.K. and other markets as well as in our Borders superstores throughout the U.S.”
Pershing Square currently owns 10.6 million shares of Borders common stock, or 18% of the shares outstanding. If Pershing executes its 14.7 million warrants, it would own 25.3 million shares, or 33.6% of the total.
Borders (BGP) is scheduled to release result today at 4pm (Central time?). Do not expect aq miracle. What you want to see is expenses falling, debt falling and sales at least stabilized. after what has happened the last 6 months, accomplishing that would be a huge boost.
Disclosure (“none” means no position): Long BGP
3 replies on “Borders and Pershing Amend Financing Agreement”
It’s a great deal for Ackman, he gets to weasel out of overpaying for Paperchase, gets 10% interest on the 42 million dollar loan for another year, and gets the strike price on the warrants reduced from $7/share to .65 cents.
Pretty crappy for shareholders unless you bought it as a penny stock. The number of shares basically gets diluted by 20%.
Don’t look for sales to stabilize at Borders. They’re aggressively shutting down Waldenbooks as leases permit and exiting the music and DVD business. Those two segments made up about 25% of their business last year.
They can’t shut down many of the money losing Superstores because the leases are too big and too long. To be viable they’d probably have to shrink down to about the size of Books-a-Million but how they can do that without bankruptcy who knows?
not really, the reason for the original loan was to provide $4 until credit markets came back, selling him paperchase was to avoid repayment of loan.
credit markets still fuc%#d so even if paper chase deal done, still need $$. with loan extended 1 yr. no reason to sell paperchase as it is still profitable.
dvd business is a loser and the downloads and new concept stores ar e doing better than expected.
dvd still for sale online where most poeple buy them anyway, music also
waldenbook was a loser, that is why they are shutting down and not sure of the %, but it was much less than 25% (not sure if you mean rev. or profits)
not saying it will be fast or easy…but i think it will happen
Waldenbooks is about 15% of revenues and Music/DVD is about 10% of revenue. Neither segment may be profitable, but there is no indication that Borders can make their Superstore/book segment profitable either.
The question is how far does Borders have to shrink to become profitable–$2B per year revenue? Less? Given the stock dilution, even in a best case scenario it’s hard to justify much of market cap even if they can become Books-A-Million profitable. It’s not like books are a high margin business.
Given the capex budget for the next year don’t expect to see any expansion of the concept stores even if they are successful (and I’m not sure that they are).