South of the Border

Borders is going out of business. Why now?

It’s reasonable to ask why they’re liquidating right now. Yes, the franchise has operational problems: they were slow to embrace eReaders, and their web site is a joke. But in their official filings, they listed assets of $1.28 billion and liabilities of $1.29 billion. Surely something could have been worked out.

The reason is a new law: it’s because of 40 stores.

Congress restructured bankruptcy laws a couple years ago. In that revamp, bankrupt companies were given a seven month grace period before they had to assume their leases and promise to pay them in full. That allowed landlords to evict delinquent lessees if their bankruptcy proceedings were taking too long. This protects landlords and allows their claims against a bankrupt company to jump to the front of the line.

In the Borders bankruptcy, 90% of the landlords agreed to extend this deadline. But forty landlords—of the most economically valuable properties—did not. They wanted to re-let their stores to someone else and get cash now, rather than wait for a further restructuring. Borders couldn’t survive without these profitable stores.

10% of the landlords are in effect forcing Borders’ liquidation so they can get back their properties—and causing 10 thousand layoffs in the process. Bankruptcy law is supposed to protect the greater good. In this case, it did not.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-11T11:12:12+00:00July 24th, 2011|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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