BB Liquidating Inc. (BLIAQ)

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Blockbuster Inc. is seeking a new loan that would keep it afloat in bankruptcy court, a fresh sign the movie-rental chain could be forced to seek Chapter 11 protection from creditors to rework more than $900 million in debt.

Blockbuster is in discussions with bondholders to get up to $150 million in so-called debtor-in-possession financing, said people familiar with the matter. Such loans, which typically carry high-interest rates, are used to help companies operate while under bankruptcy-court protection.

The talks don't necessarily mean Blockbuster will file for bankruptcy. Blockbuster is pursuing other options, and troubled companies often negotiate bankruptcy loans as a precautionary measure and still reach deals with creditors to restructure debts outside of court.

On a separate front, Blockbuster is talking with possible strategic partners about a new cash infusion, a person familiar with the matter said. Under that scenario, a group of lower-ranking bondholders owed $300 million would likely convert their debt to equity, this person said.

One potential investor could be NCR Corp., which provides the company with Blockbuster Express-branded vending machines, this person said. It remained unclear what other possible investors Blockbuster had sounded out. Blockbuster and NCR declined to comment.

Should Blockbuster fail to get money from an outside investor, it would pursue a restructuring with its creditors. The company hopes to restructure outside of bankruptcy. But Blockbuster has warned in regulatory filings it could be forced to seek court protection to rework its debt.

Should the company decide to file, it hopes to reach a deal with creditors beforehand, the person familiar with the situation said. Any filing would come after Blockbuster's June 24 shareholder meeting, this person said.

Blockbuster has roughly $40 million in debt payments due July 1. The movie-rental chain had about $110 million in cash and cash equivalents as of April 4. It posted a $65.4 million loss for the first quarter.

In recent talks, Blockbuster has asked the bondholders at the top of the company's repayment pecking order to waive payments that run more than $20 million a quarter. The two sides have also discussed converting some of the bondholders' debt to equity, the person familiar with the matter said.

The talks underscore Blockbuster's increasing struggles to navigate a strained cash position and stiff competition from rivals such as DVD mail-order giant Netflix Inc. The company is also mired in a proxy fight with a dissident shareholder.

Blockbuster has said it expects the next 12 to 18 months to "remain challenging" while it focuses on restructuring debt and cost-cutting. The company had closed 470 stores through April.

Blockbuster's stock has traded below 30 cents recently. Netflix stock, meanwhile, is trading close to $120, soaring from around $80 in early April. Netflix now boasts a market capitalization of more than $6 billion, some 100 times greater than Blockbuster's $60 million stock value. Netflix has about 12 million subscribers to Blockbuster's 1.6 million for its mail-order service.

Blockbuster's debt, too, has plunged in recent months. Its senior bonds now trade around 50 cents on the dollar, suggesting investors don't believe the company will come close to repaying the full $630 million it owes.

The value of $300 million in junior bonds—which are last in line to get paid—now trade below 10 cents on the dollar.

Source: http://online.wsj.com/article/SB10001424052748703509404575300741916195132.html


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