Bad Times at Borders

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In summer 2007 the company seemed poised to get a loan from Wall Street investors. But with the financial markets melting down, the deal collapsed. Looking for other ways to raise cash, Borders then reached an agreement to sell its stores in Australia and New Zealand—only to have the buyer back out just two days before closing.

As its losses mounted, Borders was forced to revise one of its loan agreements last August. Its accountants questioned whether it would have enough money to pay its bills by the end of the year. And meanwhile, consumers were starting to cut back on their spending.

“The retail market got much more difficult, not just for us but for all retailers,” Jones says. “We just started budgeting much more conservatively for this year.”

Last fall, Borders sold its bookstores in Great Britain for $30 million, retaining a small equity stake. And this spring, it closed on a $43 million loan from Pershing Square Capital Management. The hedge fund had been buying up Borders shares for months, and currently owns 18 percent of the company. “They came forward, to give us this certainty” that the liquidity problems would not materialize, Jones says.