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Blockbuster Is Said Likely to Get One-Month Reprieve on Debt

By Jonathan Keehner, Jeffrey McCracken and Ronald Grover - Aug 6, 2010 1:15 PM PT

Blockbuster Inc. will probably receive a one-month reprieve from creditors next week so the video-rental chain can prepare for a possible bankruptcy filing in September, three people with knowledge of the matter said.

Lenders are pushing for a pre-packaged bankruptcy in exchange for the 30-day extension on debt repayment, said the people, who declined to be identified because the negotiations are private. Blockbuster is reaching out to companies about buying assets in or out of bankruptcy, one of the people said.

“We’ve been transparent throughout this process about the potential sales or licensing of certain international operating assets,” Patricia Sullivan, a Blockbuster spokeswoman, said in an e-mailed statement. “These discussions are ongoing.”

The company continues to engage in “productive talks” with lenders, Sullivan said.

Blockbuster’s only option may be filing for a Chapter 11 restructuring, said Michael Pachter, an analyst with Los Angeles-based Wedbush Securities Inc. who rates the stock “neutral.”

“The debt is killing them,” Pachter said today in a telephone interview. “They have to wipe the slate clean and get out from under $100 million or more of interest payments.”

The company’s main asset is its inventory of DVDs and the name, which Pachter valued at “tens of millions of dollars.”

NCR Corp. is licensing the Blockbuster moniker for use in video vending machines it’s installing throughout the U.S. The company, based in Duluth, Georgia, has more than 6,500 kiosks, primarily under the Blockbuster Express brand, according to a news release last month.

Losing to Competitors

Bondholders agreed last month to let Dallas-based Blockbuster defer the interest and principal on senior secured notes until Aug. 13. The company has lost about $1 billion during the past three years on competition from Netflix Inc.’s subscription service and Coinstar Inc.’s Redbox DVD machines.

Blockbuster fell 2 cents, or 9.1 percent, to 17 cents at 3:59 p.m. New York time in over-the-counter trading. The shares have dropped 75 percent this year. The company’s $630 million of 11.75 percent notes due in 2014 last traded July 28 at 66.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Blockbuster’s secured bondholders hired Houlihan Lokey Howard & Zukin in March to advise them on the video retailer, people with knowledge of the move said at the time. Blockbuster is being advised by Rothschild and Weil Gotshal & Manges LLP.

http://www.bloomberg.com/news/2010-08-06/blockbuster-may-get-one-month-reprieve-on-debt-to-prepare-for-bankruptcy.html