DALLAS — Blockbuster has announced its plans to voluntarily enter into Chapter 11 bankruptcy as a way to clean up the struggling company's balance sheet. The recapitalization plan the company submitted to its senior noteholders aims to reduce its corporate debt from its present size of approximately $1 billion to $100 million or less.
As part of the restructuring process Blockbuster has secured a $125 million commitment in new “debtor in possession” financing from its senior noteholders what will allow it to continue normal day-to-day operations. The senior noteholders comprise a group of bondholders that possess approximately 80.1 percent of the prinicple amount of Blockbuster's 11.75 percent senior secured notes. Upon its exit from bankruptcy, the company's senior secured notes will be exchanged for equity in the reorganized company. The capital drawn down from the $125 million commitment will convert to an exit loan facility, and a new $50 million exit revolving credit facility will be created. Finally, there will be no recovery from holders of Blockbuster's outstanding subordinated debt, preferred stock or common stock.
The company did not disclose how it plans to reduce its debt, only stating that “the company will evaluate its U.S. store portfolio with a view towards enhancing profitability of its store operations.” The company said that all 3,000 of its retail locations will remain open in the short term.
The move to Chapter 11 was not altogether unexpected. Blockbuster has been losing market share for years to online content providers such as Netflix despite its attempts to alter its business model. In addition to its stores, the company operates approximately 6,600 movie rental kiosks and has its own competitor to Netflix, which it calls Total Access. Last year, the company announced alliances with provider's such as TiVo to provide content on demand. The company also reduced the number of its retail stores, closing approximately 1,000 of them since last September.
— Coleman Wood