Blockbuster Gets Second Extension, But May Still File Bankruptcy
Video rental chain Blockbuster Inc. has inked a new agreement with its creditors to extend payment deadlines and restructure its debts by September, buying it more time to avoid filing for bankruptcy protection, the Los Angeles Times reported today.
It will be the second extension granted to the Dallas-based company, whose business has shrunk considerably as online portals Redbox and Netflix gained ground. As of June, it has lost a total of $69 million - an 86% rise from last quarter - and had to close 507 outlets around the world.
The company has already warned investors that even if it does manage to restructure its debt, they may still have to file for Chapter 11 bankruptcy protection as there isn't enough business to keep it going.
Blockbuster had recently teamed up with cable provider Comcast Corp. in a video game rental project, a service not yet offered by Netflix. Recent promotions also claim that it receives films from Universal Pictures, Warner Bros., and 20th Century Fox almost a month before its Web rivals.
Still, the outlook for the company remains dim with its severe cash shortage and inability to make necessary investments. By last month, its cash reserves totaled a mere $64.3 million against $920.4 million in total debt.
About two-thirds of this debt is in the form of senior secured notes, the interest payments for which are already due. Blockbuster has managed to get 70% of the creditors to agree to a forbearance until the end of September.
The rest of the debt is in senior subordinated notes, which will become due in two weeks. The company has already admitted it won't be able to make the $300-million payment on time, making it all the more urgent to reach a structuring agreement.
CEO Jim Keyes said in a statement that the company is aiming to recapitalize its debt as soon as it can, so that they can start focusing their resources on "strategic opportunities… for business transformation."
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