Borders Group Inc. has announced the terms of its financing agreement with Pershing Square Capital Management and the terms, while stiff, are less onerous than originally stated (see "Credit Crunch Hits Borders").  The new terms lower the interest rate on the $42.5 million in financing from 12.5% to 9.8%, increase the minimum price of Pershing's backstop offer for Borders' overseas holdings from $125 million to $135 million (Borders maintains that the foreign assets are actually worth substantially more than the new offer as well), and cut the number of warrants issued at closing from 14.7 million to 9.55 million while slicing the term of the warrants from 7.5 to 6.5 years.

However Borders will have to issue the warrants that have been cut if Pershing has to buy the international operations, if the sale of Borders isn't signed by October 1st, or if Borders decides to end its strategic review efforts.

Pershing Square Capital Management is headed by William Ackman, who has earned a reputation as an activist investor and given Pershing its reputation as an aggressive hedge fund.  The company now has a 26% stake in Borders and also controls 11% of Barnes & Noble (making Pershing the second largest stakeholder in B&N) and could be looking to facilitate a merger.