Is the end near for Borders?

According to the Wall Street Journal, Borders announced yesterday that it is delaying payments to some publishers in order to conserve cash, and is trying to restructure payments to those publishers. The company is also trying to refinance its operations, but it says that "there can be no assurance" that it will so do. If it doesn't refinance its existing debt, it will default on some of its lending agreements in Q1 2011, which could lead to "a liquidity shortfall"--in other words, not enough money to fund ongoing operations.

What's even more concerning to some analysts is that Borders is doing this after the end of the Christmas shopping season, when the company's cash reserves should be at their highest level of the year. It indicates that Borders may have significantly missed its sales targets for Christmas. Borders has only shown a profit in two of the last 11 quarters--Q4 2008 and 2009, which included the Christmas selling seasons in those years.

The only publisher that has so far announced that Borders has delayed its payments is Hachette, which includes Little, Brown and Grand Central Publishing. Hachette is one of the "Big 6" U.S. trade publishers (including HarperCollins, Macmillan, Penguin Group, Random House/Bertlesmann and Simon & Schuster), so if Borders is delaying payments to one of them, it's probably delaying payments to all of them.

Even if only one of the "Big 6" decides to stop shipments to Borders, it will dramatically impact the company's ability to keep operating. If customers learn that they can't purchase the books they're looking for at Borders, they'll switch to Barnes & Noble or Amazon. I doubt that any publisher wants to see Borders fail, but they also don't want to advance more inventory to Borders on extended credit, only to see it frozen should the company declare bankruptcy.

The clock is ticking, and the next 90 days may be the most important in Borders' history.