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09/23/2010

Blockbuster Files for Bankruptcy; Will Evaluate Stores for Profitability

As had been expected, financially troubled movie rental chain Blockbuster has filed for a pre-arranged bankruptcy in the Southern District of New York. The company's recapitalization plan calls for lowering Blockbuster's debt from nearly $1 billion to an estimated $100 million.
 
The company will continue with business as usual during the reorganization process, with all 3,000 Blockbuster stores remaining open along with DVD vending kiosks, by-mail and digital streaming of movies. However, Blockbuster says it will evaluate its store portfolio with a view towards enhancing the overall profitability of its store operations.
 
Last month, when news of the planned Chapter 11 filing first appeared, published reports indicated the company would use its coming reorganization to exit leases on 500 to 800 of its worst-performing stores. In the past year alone, Blockbuster has closed nearly 1,000 of its stores.
 
Blockbuster has secured a commitment of $125 million in new "debtor-in-possession" financing from its senior noteholders, a group that holds approximately 80% of the company's senior secured notes. According to published reports, billionaire investor Carl Icahn is among those that have signed off on the restructuring deal.
 
Along with other brick-and-mortar movie rental retailers, Blockbuster has struggled in recent years. Movie Gallery declared bankruptcy earlier this year and announced plans to close more than 850 of its stores. Competitors offering movies delivered through self-service kiosks, the mail, or digitally have made inroads with customers seeking convenience.
 
However, Blockbuster chairman and CEO Jim Keyes said Blockbuster's multi-channel delivery methods would be a benefit following the company's exit from Chapter 11. "The recapitalized Blockbuster will move forward better able to leverage its strong strategic position, including a well-established brand name, an exceptional library of more than 125,000 titles, and our position as the only operator that provides access across multiple delivery channels—stores, kiosks, by-mail and digital. This variety of delivery channels provides unrivaled convenience, service, and value for our customers."
 
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