Blockbuster Offers $340M in Notes, Analyst Response Mixed

14 Sep, 2009 By: Erik Gruenwedel

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Blockbuster Sept. 14 said it would offer institutional investors up to $340 million in senior notes due 2014, in a private offering.

The Dallas-based No. 1 DVD rental service said it would use the proceeds from the sale to pay down existing debt responsibilities, including $135 million in revolving credit facilities in the United States and Canada due in August 2011 and $300 million in 9% notes due 2012, among other expenses.

Tony Wible, analyst with Janney Montgomery Scott in Philadelphia, applauded the announcement, saying Blockbuster would now be able to reinvest in infrastructure renewal and the rollout of its nascent Blockbuster Express kiosks with partner NCR Corp., among other initiatives.
 
“With the debt overhang essentially removed, we believe the company can now focus on a balance of growth and cash flow generation, and debt pay downs that should transfer the company’s $956 million enterprise value from debt to equity holders,” Wible said in a research note.

Edward Woo, research analyst with Wedbush Morgan Securities in Los Angeles, remained on the fence, saying the note looked good on paper but that the undisclosed terms of the offering (likely to be expensive, Woo said) would ultimately determine the usefulness of the deal.

“This may just [put Blockbuster] back into the same position it was yesterday,” Woo said. “The debt-holders yesterday are still the debt-holders today. If this was new money, then there may be more confidence, but it sounds like just a refinance.”

Regardless, Blockbuster shares closed Sept. 14 up nearly 11% to $1.33 per share in heavy trading of almost 15 million shares.

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