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Blockbuster Prepares for Bankruptcy

Sep 22 2010


Blockbuster Prepares for Bankruptcy

According to sources close to the company, Blockbuster is preparing to file for bankruptcy with plans to close hundreds of more stores as they battle against cheap online options (Netflix) and kiosks (Redbox). The company hopes to convert debt to equity and wipe out debt by filing for Chapter 11 bankruptcy. The company currently has $900 million in debt and hopes to rid itself of most of the debt.

The bankruptcy filing could happen as early as today, as originally reported in the Wall Street Journal.Investor Carl Icahn holds almost 33% of the senior debt according to reports, which would be converted to equity and not wiped out according to the plan. He also has veto rights over any restructuring plan.

The number of Blockbuster stores to close would range from 500 to 800 in addition to 1,000 stores closed already. It is no surprise that brick and mortar video rental stores are struggling, especially those that are heavily in debt. Family Video is a rare exception that has expanded into rural areas and only with reinvested profits.

Shares of Blockbuster, which have already been delisted by the major exchanges, fell 23% to 6 cents while shares of competitor Netflix are rallying on the news, up 4.8%.