Borders Group Inc. is continuing talks to a secure a $500 million credit line and has hired bankruptcy and restructuring lawyers, said people familiar with the matter.

Borders has chosen law firm Kasowitz, Benson, Torres & Friedman to advise on its current refinancing efforts, these people said. Kasowitz's instructions are to keep the company out of bankruptcy court, one of these people said.

A Borders employee unloads copies of Former U.S. President George W. Bush's new memoir 'Decision Points.' Getty Images

To that end, Kasowitz met Thursday with publishers to pitch them on a plan to defer payments and is talking with GE Capital about providing a new revolving credit facility that would replace existing debt, this person said.

The new credit line would provide about $500 million in fresh capital and perhaps more, this person said, allowing Borders to repay some $220 million in current outstanding senior debt. Borders hopes the new financing can provide a bridge for the company over the next six to 12 months while it rearranges its business, this person said.

Representatives for Borders and GE Capital declined to comment.

Several major publishers remain unconvinced about the proposed refinancing after hearing more details about the plan from Borders and its advisors this week. It is a sign that the impasse between the nation's second largest bookstore chain and some of its suppliers is likely to continue.

"Nothing has changed," said one publishing executive. "There will be further discussions between experts representing both sides, but the question is why would you extend further credit if you don't have confidence in their strategic plan going forward? However, it's still a very fluid situation."

The nation's second largest bookstore chain halted payments to key publishers and distributors in December, and some publishers have stopped shipping books as a result.

The retailer continues to receive new books from a key supplier, Ingram Content Group, a unit of closely held Ingram Industries Inc. based in Nashville, Tenn., that handles titles from a wide variety of publishing houses.

A second publisher said they are evaluating the various alternatives. "It's a negotiation," said this person. "If the refinancing succeeds, Borders will have more cash and it will put them in a position to do more building on their membership program, which is off to a good start."

"It's hard to tell what will happen at this point," added this publisher. "None of the alternatives are great."

Borders is asking vendors to defer payments in exchange for an interest-bearing promissory note of about three years in duration.

Under the plan, the notes would be secured by Borders collateral, one of the people familiar with the matter said, though the details were still being worked out.

GE wants less money going out the door to publishers if it provides new financing for Borders, one of the people familiar this person said. The person said GE wants publishers to show "shared sacrifice."

Borders hopes to get the multi-layered deal—new financing from GE and agreements from publishers to defer payments for interest-bearing notes—by early February, this person said.

Kasowitz has been advising Borders for some time, and joins restructuring advisers from investment bank Jefferies & Co. as those in talks with the company about rearranging its finances. Kasowitz wouldn't prepare a bankruptcy filing for Borders except under a worst-case scenario, the person said.

While Borders has yet to win over publishers, discussions between the two sides will continue. One area of negotiation: the terms of the interest-bearing note. At Thursday's meeting, publishers say a possible sweetener was floated to provide them with collateral for the note. Details of what form that collateral might take could not be learned.

Write to Mike Spector at and Jeffrey A. Trachtenberg at