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Borders’ Publishers, Landlords Band Together in Bankruptcy

Borders Group Inc. took a big step in trying to alleviate its problems by filing for Chapter 11 bankruptcy protection last week. But the troubled bookstore chain’s fate now in large part rests in the hands of a small group formed in a hotel Thursday.

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During a meeting at the Hilton hotel in midtown Manhattan, the U.S. Trustee handling Borders’ bankruptcy case appointed the official committee of unsecured creditors, which serves as a kind of watchdog to companies under bankruptcy protection.

In many cases, these committees play second fiddle to hedge funds and other big debt investors who form their own creditors’ committees. But for Borders, the unsecured creditors committee roster is a who’s who of major publishers and landlords who arguably hold the bookseller’s future in their hands. According to people familiar with the matter, the big seven on the committee are: Penguin Group, Random House, HarperCollins (owned by News Corp., which owns The Wall Street Journal), Perseus Books Group, Sony, General Growth Properties and Simon Property Group. The committee tapped Lowenstein Sandler as legal counsel.

Borders has a stack of overdue bills from these creditors. Penguin leads the list of the bookstore chain’s largest unsecured creditors, owed $41.1 million. Creditors committees can investigate how companies operate during bankruptcy, among other things, so significant court filings from the vendors and landlords could be in the offing.

To get back on its feet, Borders will soon need to present a suitable plan to publishers that will persuade them to ship books to the retailer’s stores. The landlords will play a key role in negotiating reduced rents with Borders for stores the company wants to keep. General Growth, for instance, said in a court filing that it is landlord for three-dozen Borders stores, or 5% of the company’s total.

The clock is ticking. Borders has to decide which stores to keep or close in about four months under complex terms of its bankruptcy financing agreements. Borders has a head start, with liquidation sales already underway at some 200 stores.

Bringing it full circle, publishers and other vendors will weigh in on whether Borders is closing enough stores or the right ones, and whether its broader reorganization plans make the case for keeping the company in business.

One publishing executive recently told The Wall Street Journal Borders indicated it could come back with a business plan in about a month. Whatever the case, Borders doesn’t have much time to dawdle.

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