WSJ: Blockbuster Bankruptcy Filing Imminent

22 Sep, 2010 By: Erik Gruenwedel

FBlockbuster Inc. is expected to file a much-anticipated pre-packaged bankruptcy within days and could do so as early as today, according to The Wall Street Journal.

In a pre-packed bankruptcy, senior creditors, in this case movie studios and bondholders, agree in advance to the terms of the filing, which can ease and expedite the process through the bankruptcy court system.

Dallas-based Blockbuster, which is the largest store-based disc rental chain, has been struggling to recapitalize and restructure more than $900 million in debt, a dilemma that has forced the rental icon to twice delay (until Sept. 30) a $42.7 million interest payment. CFO Thomas Casey departed the company Sept. 11.

Citing sources familiar with the proceedings, the WSJ said corporate raider Carl Icahn, who recently acquired one-third of Blockbuster’s senior debt, is pushing the filing that would make Blockbuster debt free by converting $630 million of senior debt into an ownership stake of a new Blockbuster with a further reduced store base. The new company would focus on digital distribution, including video-on-demand, kiosks, mobile and other platforms.

Icahn, or a representative, also would gain a seat on Blockbuster’s board. Junior debt holders would receive nothing.

Michael Pachter, analyst with Wedbush Morgan Securities in Los Angeles, wonders if a digital-centric Blockbuster can compete with existing and pending services offered by Amazon, Apple, AT&T, Verizon, Microsoft, Sony, Vudu, Hulu and Netflix.

“They have insufficient capital to obtain content or offer guarantees, and they can’t advertise a VOD solution, so I don’t see how they will capture much market share,” Pachter said. “There will be some demand for physical rental as long as there are DVDs, but they are going to continue to be outflanked by Netflix and Redbox on the physical side. I think we’ll see their business continue to erode for a long time.”

A Blockbuster representative was not immediately available for comment.