Blockbuster files for bankruptcy

Chapter 11 protection will allow the video-rental chain to cut nearly $900 million in debt and continue store operations, but it leaves shareholders empty-handed.

By TheStreet Staff Sep 23, 2010 8:31AM

By Jeanine Poggi, TheStreet

 

The long-awaited Blockbuster (BLOKA) bankruptcy filing came in the wee hours this morning. The Chapter 11 restructuring will allow the company to cut debt by nearly $900 million while continuing to operate stores and kiosks.

 

Shareholders and investors holding subordinate debt -- who stuck by the company through the past year of bankruptcy scares and ongoing discussions -- are out of luck.

 

More than 80% of the company's senior noteholders have agreed to support the plan and provide $125 million in "debtor-in-possession" financing to help support Blockbuster's operations while it undergoes the restructure. Under the plan, bonds will be converted into equity.

 

The restructure does not include Blockbuster's international operations, and in a separate release Blockbuster Canada said business will go on as usual.

Blockbuster has been struggling to make debt payments, pushing off a $42 million payment two times over the summer. It was scheduled to make that payment on Sept. 30.

 

While right now Blockbuster will continue operations, the company did say it will re-evaluate its portfolio of more than 3,000 stores.

 

Rival Movie Gallery filed for Chapter 11 protection earlier in the year but ultimately ended up liquidating its assets.

 

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