Borders is Hurting

It's prudent to keep an eye on the companies that sell what you produce. And Borders continues to be in trouble that is so bad that the company has bounced its CEO and other top managers. Borders has also close to being delisted from Nasdaq. If you don't follow business issues, then you might not realize how big a problem this can be for the following reasons:

• Credit rating agencies will degrade the credit status of the company, meaning that getting the money it needs to operate will be more difficult.
• Delisting puts vendors on guard, so the company will likely also have bigger problems getting the stock it needs to sell.
• Loans and other financial agreements often have financial covenants, or agreements that certain measures of company performance will not fall below certain benchmarks. That can include keeping the stock listed. If the company breaks a covenant, it can find itself suddenly owing a lot of cash, which isn't good if you're short of cash to begin with.
• Although a delisted stock can still be traded "over the counter," practically speaking, it's far less liquid and, therefore, less attractive. Lower stock price means a harder time raising money through issuing more stock.
  

Ron Marshall, who is a private equity firm founder and someone with experience in turnaround situations, is now in place as temporary CEO. But that's not necessarily going to help:

Before his tenure at Pathmark, Marshall held senior management roles at Dart Group Corp.'s Crown Books unit and at the college bookstores unit of Barnes & Noble Inc.

That book retailing experience might be a little dated, said Michael Norris, a senior analyst for Stamford, Conn.-based Simba Information. He said he believes Jones' approach had been effective, but that investors must have thought it wasn't working rapidly enough.

The final straw was likely that the company's sales dropped this holiday season by 11.7 percent compared to the same time last year. Same store sales - a big measure of how well a company is doing when established for at least a year - dropped by 14.4 percent at Borders locations and by eight percent at Waldenbooks.

That's even worse than you might think, because retailers typically make 60 percent of their sales at the holidays, so the impact is magnified. Not that the stock can drop that much - it's under 60 cents a share, compared to the $11.60 a year ago.