Blockbuster prepares bankruptcy filing

3:49 AM PDT 8/27/2010 by Staff report, AP

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Eyes pre-planned Chapter 11 in mid-September

Video rental giant Blockbuster is planning to file for Chapter 11 bankruptcy in mid-September to restructure its nearly $1 billion in debt and escape leases on several hundred stores.

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The company, which has been trying to get rid of its crippling debt load, has told Hollywood studios that it plans a pre-planned bankruptcy filing, according to the LA Times.

Unlike a Chapter 7 liquidation, a Chapter 11 filing allows a company to work out its debt issues via a restructuring plan. Pre-planned filings get most creditors of a company - in this case that includes content suppliers - on board with the plan ahead of time.

Blockbuster CEO Jim Keyes held meetings with studio heads in LA last week as a continued supply of movies is key for the Dallas-based company. After emergence from Chapter 11, Blockbuster's senior debt holders are expected to own a big stake in the firm.

Earlier this month, Blockbuster got an extension on debt payments, but Wall Street analysts said even back then that a bankruptcy filing was a distinct possibility.