BB Liquidating Inc. (BLIAQ)

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S&P cuts Blockbuster to deeply distressed rating

Standard & Poor's on Wednesday cut its ratings on Blockbuster Inc (BBI.N) to a deeply distressed rating and said the movie-rental chain is vulnerable to a debt default, though its liquidity is adequate in the near term.

S&P cut Blockbuster's corporate credit rating two steps to CCC, eight steps below investment grade, and assigned the company a negative outlook, indicating an additional downgrade may be likely over the coming 12-to-18 months.

"The negative outlook reflects our expectations for performance to likely remain very weak for at least the near term and for credit metrics to deteriorate substantially," S&P said in a statement.

Blockbuster's debt has been volatile since the company warned in January that its fourth-quarter and fiscal 2009 earnings would be sharply lower than expected, causing its bonds to halve in value.

The company's 9 percent bond due 2012 dropped .37 cent on the dollar on Thursday to 18.5 cents, according to MarketAxess.

Blockbuster is struggling to turn around its business model to compete with new entrants and technologies in the movie rental business.

"The downgrade reflects our view that performance will remain very challenged and our concern that Blockbuster will not be able to transform its business model over the near term, as we had expected, given the competitive pressures in the rapidly evolving domestic media entertainment industry," S&P said.

Blockbuster's liquidity is adequate for the near term, however the company is highly leveraged and has very thin cash flow protection, the rating agency said.

Debt maturities of $95 million due this year will likely use up a significant portion of the company's free operating cash flow, S&P said

Source: http://www.reuters.com/article/idUSN1714408220100217