There were few surprises at Thursday’s omnibus hearing at U.S. District Court in New York for the Borders bankruptcy, except possibly a ballpark figure for unsecured creditors claims: in excess of $500 million, according to Creditors' Committee attorney Bruce Buechler with Lowenstein Sandler. That includes over $300 million in trade claims; over $200 million for landlord rejections claims. Nor were there any scoldings from the bench. Only one motion caused Judge Martin Glenn to say it raised his eyebrows, an order authorizing Borders to enter into a work agreement and pay some pre-petition claims for Sutherland Global Services, its call center in the Philippines.
According to Borders any interruption of service would be catastrophic, and it could take them four months to find a replacement service. The Creditors' Committee had no objections; Buechler assisted with the negotiations for a new contract and a payment of $420,774.56 on Sutherland’s prepetition unsecured claim. The remaining $360,476.02 will be allowed as a general unsecured claim without a requirement to file proof of claim.
What some industry watchers had thought might be a contentious subject, “Trade Terms with Vendors,” which allows Borders to return prepetition and postpetition goods mingled together, in fact sailed through. While in the future Borders said that they intend to be more disciplined in their purchasing to help their liquidity, they argued that they need to be able to take advantage of the return provision. They worked with the Creditors' Committee on the proposal, which includes allowances for publishers to cap the amount of merchandise returned.
In response to the judge’s request for an update, Borders said that it had a meeting with the Creditors' Committee yesterday and will have a follow-up meeting later today. At this point it is finalizing a business plan and is preparing to focus the next phase--its exit from Chapter 11. Borders told the judge it doesn’t anticipate this to be a lengthy case.
Also on Thursday, a formal objection to Borders's plan to pay bonuses of about $8 million was filed by the U.S. Trustee, Tracy Hope Davis. Davis called the bonus motion "premature," noting that the company has only been in Chapter 11 for two months and has yet to file its schedules. In addition, Davis argued that there is not enough financial information for the court to make a decision on the bonuses. "The bonus motion provides no financial performance metrics nor are the bonuses tied to the number of stores that will continue to operate under a plan of reorganization," Davis noted, and added that it is unclear whether unsecured creditors will receive any money.
