Home Media Magazine » Blockbuster Ups Bankruptcy Threat 18778
Font Size: A A A

Blockbuster Ups Bankruptcy Threat



By : Erik Gruenwedel | Posted: 16 Mar 2010


Blockbuster March 16 ratcheted up concerns about its future when it included language in a March 16 10K filing that it could cease operations as a going concern due to severe liquidity and debt issues.

The warning, which CEO Jim Keyes outlined in a previous financial call, reiterated that the Dallas-based rental giant does not have the ability to borrow funds under a revolving credit facility as a result of more than $900 million in outstanding debt and seriously eroded credit ratings.

Indeed, the company said that if the major studios tightened credit terms for new-release DVD/Blu-ray Disc titles, its ability to maintain competitive operations would be compromised. Blockbuster said it remained in discussions with studios to “maintain or improve” existing credit terms by pledging “unencumbered” Canadian assets as collateral for new release packaged media.

The chain operates 459 company-owned stores in Canada.

“We may borrow against our unencumbered Canadian assets … as an alternative,” Blockbuster said in the filing. “However, there can be no assurance that we can execute either alternative.”

Blockbuster said that should cash flow from operations decline further and studios tighten or eliminate credit terms, it would seek relief through a pre-packaged Chapter 11 filing of the U.S. Bankruptcy Code. Such action would mark the second bankruptcy filing by a major video rental chain this year following Movie Gallery's filing in February.

Analyst Michael Pachter with Wedbush Morgan Securities in Los Angeles said the likelihood of Blockbuster filing bankruptcy was about 25%.

Colleague Edward Woo said Blockbuster management has been hinting at this scenario for a while, with the company’s poor fourth-quarter results representing another nail in the coffin.

“The language is a further signal of the dim prospects of the company,” Woo said.

Blockbuster operated 3,525 company-owned stores in the U.S. in 2009, excluding 493 franchise locations.

The chain earlier this week indicated it was looking to sell its European operations, which include 70 stores in Denmark and 149 locations in Italy.

Blockbuster's penny stock fell nearly 28% in after-hour trading to less than 30 cents per share.


Related Stories :


NCR: Rent DVDs Online, Pick Up at Blockbuster Express Kiosks
Blockbuster Makes Board Changes
Blockbuster Puts European Operations on the Block
NCR Brings Blockbuster Express to Six New Markets
Blockbuster Seeking to Outsource Main Distribution Center

Authors


User comments

Commented by Kim Lapper
Posted on 2010-03-17 13:51:08

Poor baby. This is what happens when you think you are the 800 pound gorilla (as so many writers have said) in the room. We all know what happens to the body when you take steroids. Funny, I’m growing as an independent rental store that belongs to Video Buyer Group. I can change my directions daily, without a bothersome stockholder breathing down my back.





NEWSLETTER

Sign up for Home Media's Daily newsletter to receive breaking entertainment news and other features.

POLL

Are Kiosk Rentals Hurting Sellthrough?

Submit Vote
- OR -
Click here to view results

SEND US

Send us video clips of home entertainment industry events and parties