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Blockbuster Facing $41.5M Interest Payment July 1

3 Jun, 2010 By: Erik Gruenwedel

Blockbuster is on the hook for a $41.5 million interest and amortization payment due in less than 30 days to its senior bondholders.

The payment was disclosed in a Dow Jones news report Dallas-based Blockbuster disseminated to shareholders in a June 3 regulatory filing.

The amount is significant since fiscally challenged Blockbuster ended the first quarter (April 4) with nearly $110 million in cash and cash equivalents, excluding a negative $54.8 million free cash flow. Free cash flow is the amount of cash a company has left over after it has paid all of its expenses, including investments.

Blockbuster is in advanced negotiations with two groups of bondholders seeking to slash more than $900 million in debt that continues to crush the company’s strategic restructuring and marketing efforts. In exchange for eliminating the debt, bondholders are seeking majority equity stakes in Blockbuster, among other issues.

“My guess is Blockbuster can’t afford the payment, which is why they are targeting to complete the reorganization by the annual shareholder meeting,” said Edward Woo, retail analyst with Wedbush Morgan Securities in Los Angeles.

Board member Gary Fernandes told Dow Jones the DVD/Blu-ray Disc rental company should have an agreement or two in place within the next 90 days. He said Blockbuster is “doing an extra thorough job” reviewing its options.

He is under attack by dissident shareholder Gregory Meyer, who is looking to replace Fernandes on the board with an unsolicited proxy bid to shareholders.

In the latest salvo of regulatory filings to shareholders, Blockbuster dismissed Meyer’s prescient claims that his warnings to the board in 2005 about the burgeoning rise of rental kiosks went unheeded. Indeed, Blockbuster, in the filing, said Meyer’s DVDXpress kiosk business was deeply in debt to Coinstar when the self-service vending operator acquired DVDXpress in 2007.

“If Meyer is such an expert in the home entertainment industry, or even in the vending segment alone, why then is he not at Coinstar today running the Redbox business?” Blockbuster said in the filing.

Blockbuster went on to discredit Meyer’s suggestion of a “time-sensitive” financial transaction that he believed could save it hundreds of millions of dollars over the subsequent few years while conserving liquidity in the near term, without any dilution to Blockbuster stockholders.

“[Meyer] fails to mention that implementing his suggestion would result in a third party controlling [Blockbuster] with the power to cause significant dilution to [its] equity holders,” Blockbuster wrote. “Meyer’s suggestion of this alternative while at the same time stressing the importance of preserving stockholder value is contradictory and further evidence that Meyer does not possess the skills or experience necessary to guide a large public company through complex refinancing transactions.”

Blockbuster holds its annual shareholder meeting June 24 in Dallas.

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