Blockbuster gets debt extension

Q2 results lower; bankruptcy filing, liquidation possible though

NEW YORK -- Blockbuster on Friday reported weaker second-quarter financials and said it has gained more time to address its financial situation and repay debt.

Nonetheless, the company said a Chapter 11 bankruptcy or maybe even a liquidation filing remains a possibility.

The video rental firm, burdened with $920 million in debt, said it reached an agreement with certain of its debtholders that gives it until Sept. 30 to work on a potential recapitalization. That delays the deadline for a $23.9 million amortization and an $18.5 million interest payment that were due this Friday.

Blockbuster said it is "in productive discussions" with debtholders and other parties "regarding various recapitalization opportunities."

Sources have said the company has looked at selling some assets. But there have also been reports that some of the company's lenders have pushed for a pre-packaged bankruptcy filing that would allow it to sort out its financial situation.

In a regulatory filing on Friday, Blockbuster, as is common in such filings, detailed some possible scenarios, including various forms of bankruptcy filings.

It said that even if it strikes a recapitalization agreement, it may end up having to file for Chapter 11 bankruptcy, whether in pre-packaged (usually speadier) form or not. This could lead to current shareholders losing their stakes and most of their money. "We could also be forced to liquidate under Chapter 7 of the U.S. Bankruptcy Code," if a possible Chapter 11 doesn't come together, the company warned.

Blockbuster had surprised investors by not reporting its quarterly earnings on Thursday as scheduled.

For its second quarter, Blockbuster reported a loss of $69 million, up from a $37 million loss on the year-ago period. It cited the effects of store closures, a decline in same-store sales and costs for working on the recapitalization.

Revenue fell 20% over the year-ago period to $788 million.

"While making progress, this extension allows additional time to complete these complex, multiparty negotiations," Blockbuster chairman and CEO Jim Keyes said about the debt situation. "To take advantage of its unique multi-channel model and revitalize its global brand, Blockbuster will require an improved capital structure. Our objective is to complete a recapitalization as soon as possible so we are better positioned to focus our attention and resources on the strategic opportunities to continue our business transformation."

Blockbuster earlier this week cancelled its quarterly earnings conference call, citing the fluid state of its debt negotiations.
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