Borders Group Inc. is in negotiations for financing that would keep it afloat during bankruptcy proceedings, said people familiar with the matter, as the bookstore chain ratcheted up pressure on publishers to agree to concessions that would keep it out of Chapter 11.

The struggling bookstore chain is in talks with Bank of America Corp. and General Electric Co.'s finance arm for around $500 million in "debtor-in-possession" financing, the people said. Such loans, which usually carry high interest rates, are used to keep companies operating after filing for Chapter 11 bankruptcy protection.

A Borders spokeswoman declined to comment.

Borders, facing a cash squeeze, increased pressure on publishers late Thursday, saying it was considering filing for bankruptcy-protection if book suppliers failed to agree to concessions that would allow the company to tap a new $550 million secured credit line from GE Capital.

Borders signaled that it could be difficult for the retailer to ultimately avoid bankruptcy court. Here, a Borders store in New York. Reuters

Borders said it had reached a deal with GE Capital for the new credit line, which would give the bookstore chain a runway to restructure outside of bankruptcy proceedings. But the credit line is contingent on several conditions, including Borders getting another $125 million of financing, which would come from publishers forgiving payments or other lenders.

Some publishers are balking at that request.

Borders signaled that it could be difficult for the retailer to ultimately avoid bankruptcy court. The new credit line also hinges on GE Capital shifting $175 million of that debt to other lenders. In addition, to get credit line, Borders must also win concessions from landlords and finalize a program to close an unspecified number of underperforming stores "as soon as practicable," the company said.

On Thursday evening, one publisher said it was unimpressed by the Borders plans and indicated that it wouldn't accept an interest-bearing promissory note in exchange for a missed December payment for books. "In order to accept the note, you have to believe that their strategy will work, but their strategy is to continue doing what they've been doing," this person said.

A second publisher also said it was unwilling to accept an interest-bearing note. "They haven't shared a plan that makes their long-term future look more sustainable than of late," said this person. "It compromises our relationships with other customers. Also, we aren't bankers to our customers."

Borders declined to comment on the publishers, but Borders' president, Mike Edwards, in a prepared statement said, "We view the refinancing route as the most practical, efficient and beneficial to all parties, and we are working with our vendors in this regard."

He added, though, "At the same time, given the current environment surrounding Borders, and in order to assure that the company can pursue its efforts to position itself to properly implement its business plan, it is prudent as well for Borders to explore alternative avenues, including the possibility of an in-court restructuring."

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