BB Liquidating Inc. (BLIAQ)

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BLOAQ: Blockbuster Sale Plan Is Criticized

http://online.wsj.com/article/SB10001424052748704506004576174600539308980.html

By ERIC MORATH

Unsecured creditors of Blockbuster Inc. are calling for the company's bankruptcy case to be converted to a Chapter 7 liquidation, unless significant changes are made to the video-rental chain's plans to sell itself to a group of senior noteholders.

In papers filed Monday with the U.S. Bankruptcy Court in Manhattan, Blockbuster's unsecured creditors committee said its constituents, including vendors, landlords and junior bondholders, would fare better if the nation's largest movie-rental chain liquidated rather than pursued a proposed sale that would keep a majority of the company's stores open.

The sale plan calls for some 600 more Blockbuster locations to close.

The current sale proposal is "designed for the exclusive benefit" of Blockbuster potential buyers and would result in "devastation" for unsecured creditors owed some $486 million, the creditors committee said in court papers.

Blockbuster, which is seeking to reorganize in Chapter 11 proceedings, has struck a deal to sell itself for $290 million to an investment group including private-equity and hedge funds Monarch Alternative Capital LP, Owl Creek Asset Management LP, Stonehill Capital Management LLC and Varde Partners Inc., which together own more than half of Blockbuster's $630 million in senior secured notes. An initial hearing on the proposed sale is scheduled for Wednesday.

The deal provides several special privileges to the Monarch-led group, the creditors said. For example, the deal would allow the buyers to dictate who receives the sale proceeds. That would allow Blockbuster to make a $125 million payment to its bankruptcy lenders, a group that includes the would-be purchasers, while leaving little for vendors and landlords that provided goods and services to the company since its Chapter 11 bankruptcy filing.

Terms of the sale would put assets such as proceeds from certain lawsuits and an interest in Blockbuster's foreign subsidiaries out of unsecured creditors' reach, wiping out a significant potential source of recovery, the creditors said. The deal would also allow the buyers to convert the bankruptcy case to a Chapter 7 proceeding at their discretion.

The creditors say the terms allow the proposed buyers to dodge protections granted to landlords under Chapter 11 and extend the time Blockbuster could hold going-out-of-business sales at the stores it intends to close. The sale plan calls for some 600 more Blockbuster locations to close their doors.
More

* Blockbuster Receives Bid From Debtholders 2/22/11
* Blockbuster Heads Toward Sales Block 2/10/11
* Deal Journal: Who Would Buy Blockbuster?
* Blockbuster to Remake Itself Under Creditors 9/24/11
* Document: Blockbuster's bankruptcy filing

The creditors said they want those and other contentious points of the sale proposal removed, or they would rather see the company liquidate.

A Blockbuster spokesman declined to comment on the creditors' request.

Monarch and the other members of the investment group didn't return calls seeking comment Tuesday.

A liquidation, the creditors said, would halt the continuing losses vendors and landlords are suffering, increase unsecured creditor recoveries and block the buyers from gaining special privileges.

If the court allows the Monarch group to continue with its efforts to acquire the company, its bid would be subject to higher and better offers at auction.

The sale plan Blockbuster is now pursuing is an about-face from when it filed for bankruptcy last September with a tentative plan to reorganize. But a lackluster holiday season forced Blockbuster to scramble for more money from creditors, leading to the Dallas company putting itself up for sale.

Billionaire investor Carl Icahn, who was heavily involved in Blockbuster's initial reorganization plans, still looms as potential rival bidder to the Monarch group's offer.

Write to Eric Morath at [e-mail]