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Struggling to avoid bankruptcy, Blockbuster extends debt deadline to Sept. 30 [Updated]

Blockbuster

With interest payments it can't afford looming and its losses mounting, Blockbuster Inc. has bought some extra time from its debt holders to form a new recapitalization agreement.

The new agreement gives the struggling DVD rental chain until the end of September to restructure its debt. It's the second such extension the company has received. If it is unable to reach an accord, Blockbuster will most likely have to file for bankruptcy protection, as it is unable to make its interest payments. Even if it does reach a restructuring pact, Blockbuster warned investors, it may still have to engage in a Chapter 11 reorganization given the continued deterioration of its business.

Dallas-based Blockbuster is still the largest DVD rental chain, but it has seen its business severely diminished by the rise of Netflix and Redbox. On Friday, it reported a 20% drop in revenue for the quarter ended July 4 to $788 million. Its net loss grew 86% to $69 million as the company closed 507 stores in the first half of the year and the more than 5,800 worldwide that remained open suffered continuing declines.

During the quarter, Blockbuster launched a marketing partnership with cable company Comcast Corp. and began offering video games through its rent-by-mail service, which Netflix does not offer. It has also noted in promotions that it gets movies from three studios -- 20th Century Fox, Universal Pictures and Warner Bros. -- 28 days earlier than Neflix and Redbox.

Nonetheless, Blockbuster's financial situation remains dire as it is severely short on cash and unable to invest in growth. As of July 4 it had $64.3 million in cash and $920.4 million of debt.

Almost $600 million of that debt is senior secured notes for which an interest payment was due Aug. 13. The company convinced 70% of the holders of that debt to extend an interest forbearance agreement until Sept. 30.

Blockbuster also has $300 million worth of senior subordinated notes for which an interest payment is due Sept. 1. The company said there is a "substantial likelihood that such payment will not be made as scheduled," adding to the pressure on it to reach a recapitalization agreement as soon as possible.

In a statement, Blockbuster Chief Executive Jim Keyes said, "Our objective is to complete a recapitalization as soon as possible so we are better positioned to focus our attention and resources on the strategic opportunities to continue our business transformation."

Blockbuster stock, which last month was delisted by the New York Stock Exchange because of its ongoing low price and moved to the "pink sheets" over-the-counter market, was trading down 4 cents midday Friday at 14 cents.

[Updated at 2:07 p.m.: At the end of trading Friday, Blockbuster stock was down 4.5 cents, or 25%, to 13.5 cents.]

-- Ben Fritz

Photo: A Blockbuster store. Credit: Ron Heflin / Associated Press

 
Comments () | Archives (6)

all they have to do is cut their prices, then customers will be more likely to switch from Netflix to online blockbuster. Possibly, even offer some kind of discount for switching.

Hope BB doesnt go out of business that would be thousands more people who lose jobs. I just signed up for free trial for their new movies/bluray/games service. Its actually pretty cheap.

Even if Blockbuster eventually makes its payment, it is not going to have enough cash to last until the end of the year. Per Blockbuster's 10-Q, the company is bleeding cash with only about $64 million available compared to roughly $189 million six months ago. Compare that to the more than $1.2 BILLION in current liabilities, that means that for every $1 that Blockbuster has, it owes $20.

Looking at the statement of cash flows on the 10-Q, Blockbuster is actually using up more money to operate than not to operate as evidenced in the large amount of cash used (not provided, used) in operating activities. It is clear that Blockbuster does not know what is good for it and just continues to stand around lifelessly until somebody finally kills it and puts it out of its misery. There's no reviving this company and anyone that continues to support it is delusional.

People are pirating American videos and putting them on foreign websites, ones that anyone can view, if they know the language. That's why Blockbuster is going down.

I'm shocked every time I see a video store that's still in business. It's beyond belief that the final nails in the coffin for Blockbuster are the post office and vending machines. The 1800's are the new 2000's!

Well we can avoid Bankruptcy,if we follows certain rules in life:-

1. Plan your budget.
2. Controls your extravagance.
3. Save for future.

and these rules are not very hard to follow.


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