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Blockbuster files for bankruptcy

NEW YORK (Reuters) – Video rental chain Blockbuster Inc filed for bankruptcy protection on Thursday after years of struggling to compete with online and mail-order movie services such as Netflix Inc.

Billionaire investor Carl Icahn and other hedge funds are among the lenders that have signed off on a restructuring deal giving them equity in the company, court documents said.

Blockbuster said that business is continuing as usual with its roughly 3,000 U.S. stores still open, but it said it would evaluate the profitability of its retail locations.

Blockbuster, which employs about 25,000 people, has been closing stores as it grapples with competition from Netflix, Coinstar unit Redbox and others that deliver movie rentals digitally.

The company filed its Chapter 11 petition with the U.S. bankruptcy court in Manhattan.

Under the plan, Blockbuster will cut its debt to about $100 million from nearly $1 billion. Blockbuster said more than 80 percent of its senior noteholders have agreed to support the plan and provide $125 million of debtor-in-possession (or DIP) financing to help it operate while in bankruptcy.

Icahn, who sat on the company's board of directors until earlier this year, has input on three of the seven directors for the post-bankrupt company's interim board. He holds about one-third of the senior debt, a source familiar with the matter told Reuters on Wednesday.

Hedge funds including Owl Creek Asset Management LP, Monarch Alternative Capital LP, Varde Partners Inc, and Stonehill Institutional Partners LP also will have equity in the restructured company.

Blockbuster and store-based rivals like Movie Gallery Inc, which filed for bankruptcy in February, have been unable to compete with the success of online and by-mail rental competitors.

Investors have flocked to Netflix, whose shares were trading for $161.72 on Thursday morning on Nasdaq, up 3 percent, while Blockbuster has languished on the pink sheets ahead of the bankruptcy filing.

Blockbuster has started offering more digital delivery and mail-order services as well as express vending kiosks, but has struggled to keep pace as it is burdened by debt.

The recapitalization "will afford Blockbuster access to new capital and liquidity," and will address its "unsustainable financial leverage," Jeffery Stegenga, Blockbuster's chief restructuring officer, said in a court filing.

He said Blockbuster can differentiate itself from rivals as the only company to provide products across multiple delivery channels, with access to 125,000 titles.

The source familiar with the situation told Reuters on Wednesday the bankruptcy plan would allow Dallas-based Blockbuster to continue operating but will involve the closing of hundreds more stores.

Blockbuster said in a statement that it will no longer provide funding to support its operations in Argentina, which have experienced continued shortfalls in operating cash flow.

In a separate statement, Blockbuster Canada said it was not included in the Chapter 11 filing and all its operations were conducting business as usual.

The case is In re: 10-14997, U.S. Bankruptcy Court, Southern District of New York.

(Reporting by Caroline Humer, Martha Graybow and Jonathan Stempel in New York; Thomas Hals in Wilmington, Delaware; Santosh Nadgir and Sakthi Prasad in Bangalore, editing by Dave Zimmerman)


Eric D. Schwerin
Rosemont Seneca Partners, LLC
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eschwerin@rosemontseneca.com
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