Early Warning Signs at Borders Part 2

It may be disappointing, but it can’t be surprising that Borders Group went bankrupt this week. It was clear some time ago the company was heading deep into distress. What made it so clear? The six classic early warning signs of financial distress. We covered the first three in our last blog post. Here’s a brief video about the last three. [youtube...

Early Warning Signs at Borders Part 1

We blogged about Borders Group back on January 4. Even though the company has a new financing commitment, it continues to have problems paying suppliers. It looks like Borders is still circling the drain. Borders’ survival is questionable, but for us the more interesting question is, “How could we have have seen the trouble at Borders coming?” What were the warning signs of Borders’ distress? In this video post we talk about three of the six early warning signs of financial distress and see how they apply to Borders. We’ll talk about the other three in our next post. [youtube SXjauKH5s7c] Early Warning Signs Part...

Borders circles the drain

The Wall Street Journal reported yesterday that Borders Group Inc. was halting payments to some suppliers, and that one publisher had stopped shipping books to Borders.  The end is near.  As we discussed in an earlier post, if trade creditors lose faith in a company, bankruptcy is almost unavoidable.  The term we use is “confidence sensitive cash flows,” which includes, in addition to trade credit, short term borrowings like commercial paper (think Lehman Brothers) and counterparty credit (think Bear Stearns).  Once one supplier stops shipping, they all will stop. Today, the Wall Street Journal reported that two senior executives had resigned (the General Counsel and the Chief Information Officer).  This is another classic early warning sign.  Let the countdown begin...