Debt, changing media habits topple Blockbuster
NEW YORK – Blockbuster Inc., once the dominant movie rental company in the U.S., filed for Chapter 11 bankruptcy protection on Thursday, reeling from mounting losses, rising debt and competitors that have better catered to Americans’ changed media habits.
For now, Blockbuster will continue to operate its 3,300 U.S. stores, although analysts expect hundreds of them to close under new owners led by billionaire investor Carl Icahn. The Dallas-based company has about 25,500 employees, including 7,500 full-time workers.
The prepackaged bankruptcy case, in the works since the spring, marks the end of an era that Blockbuster and its gold-and-blue torn ticket logo helped establish. Americans used to troop to video stores on Friday for the latest movies. Now, they’re skipping Blockbuster and watching movies from DVD-by-mail services like Netflix Inc., cable video on demand and Redbox vending machines.
The bankruptcy, filed in New York, will wipe out Blockbuster’s badly battered stock, which was delisted from the New York Stock Exchange two months ago because it was nearly worthless.
Icahn and his group own 80 percent of top-priority Blockbuster debt, with a face value of $675 million. Under the proposed reorganization plan, they will get new stock and control of Blockbuster’s board in return for forgiving the debt.
This marks the second time that Icahn has tried to turn around Blockbuster. He pushed Blockbuster to build up its DVD-by-mail service after acquiring a 10 percent stake in the company in 2005, only to see the chain get into deeper trouble.
Blockbuster’s other new owners consist mostly of little-known funds that try to capitalize on the demise of companies by buying their debts for pennies on the dollar. They are: Owl Creek Asset Management, Monarch Alternative Capital, Varde Partners and Stonehill Capital Management.
All told, Blockbuster plans to reduce its debt from nearly $1 billion to about $100 million through the bankruptcy filing. The company has received commitments for $125 million in “debtor-in-possession” financing to repay customers, suppliers and employees during the reorganization. It is seeking access to $45 million right away to ensure it can pay movie studios to keep its stores stocked with DVDs.
Late Thursday, Blockbuster said the court approved a series of requests aimed at enabling the company to continue operating its business as usual, including honoring coupons, gift cards and other customer programs, paying its employees and certain pre-bankruptcy petition claims brought by movie studios.
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