Borders losing access to small publishers due to late payments?

The Financial Times has a troubling story that calls into question if Borders is running out of cash and perhaps in danger of filing for bankruptcy.

An investigation by Debtwire found that of the publishers they stock titles from, the largest ones are being paid in a timely fashion. They are allegedly falling in arrears with the smaller groups.

The story notes that some of the smaller publishers are banding together, and have retailed Lowenstein Sandler, who specializes in bankruptcy, to look into options for restructuring debt arrangement with Borders. The concern, of course, is that in bankruptcy, smaller publishers may take a back-seat to larger claimants, and may receive little to no remumeration for outstanding receivables owed to them by Borders.

The study notes that Borders is paying suppliers on an average of 97.9 days after receiving an invoice, a far cry from the 69.4% a year prior. Average payables is down 10% from a year ago, no doubt a reflection of the stores they've closed combined with reduced same-store sales causing them to need less inventory.

As of October 31st, 2009, they had $215 million available from a $1.125 billion dollar revolving line of credit. There are fees due to Bank of America if the number drops below 10% on the note. In addition, it would appear that they would not be in compliance with SEC guidelines regarding fixed charge ratios.

The rest of the fascinating article covers the struggles they face (along with other retailers) from competition from online merchants such as Amazon as well as a shift in the marketplace towards eBooks being a notable percentage of books sold online.

They also cover the poor holiday results I noted yesterday, as well as their negative $34.2 million EBITDA (earnings before interest, taxes, depreciation and amortization) for 3Q 2009, up sharply from a negative $25.5 million return in 3Q 2008.

DISCLOSURE: While I do not currently own any shares of Borders, I did in 2009. I currently have small holdings in Barnes and Noble, a direct competitor of theirs.