As the March 15 hearing on final approval for Borders’s post-petition financing nears, the Creditors Committee is raising a host of objections to approving the DIP (debtor-in-possession) motion without modification. In a filing Thursday afternoon, the committee termed many of the the provisions “unreasonable, overreaching and otherwise inappropriate.” It also called on Borders to develop an exit strategy, something that publishers had requested during pre-bankruptcy meetings with the troubled retailer.
“The Debtors must develop and consummate an exit plan (be it a sale or infusion of capital) by mid to late June, 2011,” wrote the counsel for the committee. Although the term of the DIP facility is one year after the closing of the facility, as a practical matter Borders will not have sufficient funds available under the DIP to place orders during the later part of the third quarter of 2011 for the Christmas selling season, the committee argued. They note that the facility doesn’t provide Borders with any new money beyond what was available under the Prepetition Facilities.
The committee also objected to the level of the reserve, which it considers too low. Unless the reserve level is relaxed, the committee is concerned that it could breach covenants and trigger unnecessary liquidation. It points out that the retailer’s inventory is budgeted to be in the $500 million range, more than twice the amount of expected borrowings under the DIP. And they note that the going-out-of business sales have already raised $129 million used to repay the DIP Revolver.
As the DIP motion stands now, the committee sees DIP lenders and Prepetition lenders getting undue value at the expense of unsecured creditors.
