The Work

June 21, 2011 6:16 PM

Borders Set for July Sale as Firms File Fee Applications

Posted by Brian Baxter

Bankrupt Borders Group, the nation's second-largest bookseller, could itself be sold to a bidder by the end of July pursuant to an agreement with creditors, according to a court filing on June 17, which The Detroit News and New York Times had news of this week.

The Ann Arbor, Mich.-based company began Chapter 11 proceedings in Manhattan in February after an unsuccessful effort to restructure its mounting liabilities outside of bankruptcy court. Borders immediately began shuttering 200 bookstores in 35 states and Puerto Rico and selling their inventory in an effort to streamline its operations in Chapter 11.

According to the filing, Borders hopes to announce a stalking horse bidder by July 1 and an auction for the company's assets by July 19. Borders wishes to be sold intact to any bidder, so that the chain can remain in business if U.S. bankruptcy court judge Martin Glenn approves a potential sale by the end of July.

A key factor in Borders's ability to stay in business appears to be a $1 billion takeover offer by Liberty Media for the company's largest rival, New York-based Barnes & Noble, unveiled late last month. (Barnes & Noble recently posted steep quarterly losses.)

It's a quick turn of events for Borders. As the company's bankruptcy attorneys at Kasowitz, Benson, Torres & Friedman wrote in the filing on Friday, "the going concern sale process has gained significant momentum in recent weeks, and the debtors are encouraged that one of the parties presently negotiating with the debtors will emerge as the successful buyer."

In April, a bankruptcy judge approved more than $6 million in bonuses for Borders executives. But questions soon arose about whether the debtor was solvent enough to even pay its own lawyers, after the U.S. trustee's office objected to certain fee requests by Kasowitz Benson. The U.S. trustee renewed objections to fee applications by attorneys and other professional advisers in an 11-page filing on Monday.

Court records show that Kasowitz Benson reduced several charges after the first fee objection. Borders faced another issue two weeks ago when the company risked defaulting on a $505 million credit line if it didn't liquidate another 51 stores. Borders eventually reached a deal last week with creditors to avoid closing 45 stores instead of liquidating the locations. (The company also received a reprieve earlier this month when Glenn granted Borders an extension on filing a reorganization plan.)

As previously reported by The Am Law Daily, Kasowitz Benson's tobacco ties to Borders CEO Bennett LeBow helped the firm grab the lead role advising the debtor. Court records show that Kasowitz Benson has billed Borders for roughly $2.5 million in fees and expenses from the start of the case on February 16 through May 31. A four-page declaration by Friedman in March revealed that the firm had received $2 million in retainer payments prior to Borders's bankruptcy filing.

Kasowitz Benson's latest application for compensation in the Chapter 11 case reveals the billing rates for name partner and bankruptcy chair David Friedman ($950 per hour) and his team comprised of bankruptcy partners Andrew Glenn ($825), Jeffrey Gleit ($640), David Rosner ($875), Adam Shiff ($825), Robert Novick ($775), and special counsel Alan Lungen ($625), along with corporate partners Michael Rosenbloom ($675) and Barry Rutcofsky ($650).

Baker & McKenzie, which is serving as special corporate counsel to Borders, has billed for $261,800 in fees and expenses in the case through May 31, according to court filings by the firm earlier this month and again on Tuesday. Corporate partner Craig Roeder ($710) and consulting counsel Pauline Doohan ($570) in Chicago are leading a team from the firm on the matter.

Dickinson Wright is serving as special counsel to Borders on supplier, vendor, and leasing matters. Court filings show the firm has billed for roughly $400,000 in fees and expenses in the case through May 31. Bankruptcy partners Michael Hammer ($465) and Kristi Katsma ($370), banking and finance partners Colleen Shevnock ($405) and Katheryne Zelenock ($435), and real estate of counsel Sara Engle von Bernthal ($345) are heading up the team from Dickinson Wright, which has also reduced some of its fees in response to objections by the U.S. trustee.

Lowenstein Sandler partners Paul Kizel, Bruce Buechler, and Bruce Nathan are serving as lead counsel to Borders's official committee of unsecured creditors. Court records show the firm has billed for about $853,083 in fees and expenses from February 24 through April 30.

The Wall Street Journal reported on Tuesday that two of the leading bidders for Borders, private equity titans Alec Gores and Jahm Najafi, both have immigrant backgrounds. Last month Gores was one of the bidders that lost out to private equity giant Apollo Global Management on its $510 million acquisition of U.S. entertainment company CKX, according to our previous reports. That deal closed on Tuesday.


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