Breathing Room for Borders?

Searching on Google Finance is all it takes to realize that Borders Group stock trades under the symbol BGPIQ.PK, a ticker format less-known to the general equity investor. As it turns out, Borders common stock ceased trading on the New York Stock Exchange on February 15, 2011, immediately after the company filed for Chapter 11 protection under the US Bankruptcy code. Throughout the lengthy Chapter 11 proceedings, Borders shares are traded on what is known as the Over-the-Counter Bulletin Board, or OTCBB, as well as on what is known as the Pink Sheets--all ticker symbols for companies still engaged in the bankruptcy process include an added "Q" at the end of the letter combination. Other suffixes are added for companies in other forms/stages of financial distress.

OTC Pink, known by distressed equity participants as "the speculative trading market," has no financial standards or reporting requirements; this comes in stark contrast to the SEC's stringent securities rules. The company responsible for managing the OTC Pink platform is formally known as OTC Markets Group, Inc., or informally as "Pink Sheets." According to the SEC, OTC Markets Group, Inc. is not an exchange, but rather a private company "that simply facilitates the exchange of securities between qualified independent brokers." Of course, investing in distressed equity is an extremely risky proposition, as a bankrupt company's plan of reorganization typically involves the cancelling of all outstanding equity shares (recall that common stock sits at the absolute rock bottom of the entity's capital structure, and paying senior/sub secured/unsecured debt holders is the top priority).

Judge Martin Glenn of US Bankruptcy Court in Manhattan has recently extended Borders' period of exclusivity, giving the troubled bookseller until October 2011 to file a reorganization plan, and until December to officially solicit votes from creditors. This extension will provide the company with time to talk with private equity firms interested in buying a share of the company's operations. Most recently, Los-Angeles-based Gores Group has offered to buy at least half of Borders remaining stores out of bankruptcy (200 have already been closed as part of the reorganization plan), according to DealBook. Importantly, Gores Group should be "used to working with distressed investments," as the brother of founder Alec E. Gores, Tom Gores, heads a tremendously successful turnaround-focused buyout shop. This sort of restructuring expertise should prove invaluable to a bookseller who struggled to adopt the game-changing e-book technologies (as successfully implemented by competitors B&N, Amazon, and Sony). It will be interesting to see how and when Borders will emerge from Chapter 11 protection--the saga is far from over.