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Blockbuster Creditor Seeks Chapter 11 Trustee, Not Liquidation

8 Mar, 2011 By: Erik Gruenwedel

A Blockbuster creditor holding 9% of the bankrupt rental icon’s senior secured debt has filed a motion asking the court to name a trustee to overlook the Chapter 11 reorganization rather than mandating liquidation.

Lyme Regis Partners LLC, in a March 7 motion filed with U.S. Bankruptcy Court in New York, said an independent third-party trustee would work to get Blockbuster back on track creating the fiscal reorganization plan it originally planned to submit shortly after filing Chapter 11 last September.

A trustee representing the Department of Justice, The Walt Disney Co. and a group of unsecured debtors have separately asked the court to force Blockbuster to liquidate its assets.

Lyme, in the motion, said efforts by a group of senior lenders, dubbed Cobalt Video Holding LLC, including Carl Icahn, to provide post bankruptcy funding, or so-called debtor-in-possession, or DIP, financing, have been disingenuous and self-serving.

The creditor said that in addition to creating (and seldom using) a $125 million DIP financing facility, Icahn and other senior lenders submitted motions indicating they were paying their bills — “a mere 60 days” before filing the sale motion.

“[Blockbuster] should indeed be sold, through the course of a reorganization proceeding. But, going forward, the reorganization should be managed with the intention of maximizing the value of the estate for the entire creditor body, rather than conferring an advantage upon a specific bidder such as Cobalt,” Lyme wrote.

U.S. Bankruptcy judge Burton Lifland is slated to hear motions for and against the auction process March 10.

Separately, Warner Home Video, Sony Pictures Home Entertainment and Lionsgate each filed motions with the court seeking immediate payment for past-due invoices and the return of product inventory.

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