In an attempt to tide over cash flow problems, the US bookselling group Borders said it will delay payment to some publishers. Shares of the company reacted negatively to the news and plunged 19% on Friday.
The company’s available credit line was curtailed by the lenders after it failed to maintain agreed liquidity ratios as its inventories dropped which left the company struggling with funds.
The company is seeking to replace existing credit lines, it said in a statement. However, failure to do so may lead the company to ‘liquidity shortfall’.
Mary Davis – the company’s spokeswoman said that they are trying to reschedule their accounts payables with publishers. Borders, like other businesses avail vendor financing – where extended credits are offered by publishers before they receive payments.
Warning against future events, Borders said there is “no assurance that it will be successful in refinancing its senior credit facilities or restructuring its vendor financing arrangements”. Current cash levels can sustain operations for next three months.
The company’s performance has been lackluster with third quarter results showing losses doubling over previous quarter. The company has initiated talks with other lenders for refinancing its debts and may sell some assets to raise cash.
Borders Group was recently approached by an existing investor – William Ackman, with an offer to fund its take-over bid of its much larger rival Barnes & Noble. The company competes with Barnes & Noble, Target, Amazon and Wal-Mart.
Borders had exited the UK market in 2007 by selling its subsidiary to a private equity group. The UK unit subsequently went into administration in 2009.