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Blockbuster seeks debt overhaul, shares halted
NEW YORK/LOS ANGELES |
NEW YORK/LOS ANGELES (Reuters) - Top U.S. movie rental chain Blockbuster has enlisted lawyers to help it raise capital and refinance debt, but stressed on Tuesday it has no plans to file for bankruptcy.
Blockbuster spokeswoman Karen Raskopf said the company has hired law firm Kirkland & Ellis LLP, but denied news reports that the firm could help Blockbuster file for bankruptcy.
Shares of the U.S. company, which has scrambled to compete with the increasing popularity of online video, plunged more than 76 percent before trading in them was suspended amid the reports.
A source familiar with the matter told Reuters on Tuesday that the struggling, debt-laden firm had hired lawyers and investment bank Rothschild to explore restructuring options -- including a potential bankruptcy filing.
"We do not intend to file for bankruptcy," Raskopf told Reuters.
Instead, the law firm will assist "with our ongoing financial and capital raising initiatives," she said, including restructuring $328 million in debt, comprising a term loan and a revolving credit facility due in August.
If needed, Blockbuster can implement a plan to self-fund its debt through 2009, Raskopf said.
"We look forward to discussing the progress we have made as a company and our refinancing efforts during our earnings call on March 19," she added.
Blockbuster, whose stock traded at around $30 in 2002 and whose blue and yellow, ticket-stub logo still graces some 7,000 outlets across the country, is no stranger to financial woes.
The company, which spent heavily and piled up debt to build an online DVD rental service to compete with Netflix Inc, had to restructure its credit agreements four times starting in 2005 under former Chairman and Chief Executive John Antioco.
DOOM AND GLOOM
The spending came amid an industry-wide downturn in in-store rental revenue and led to a proxy battle between Antioco and billionaire Carl Icahn, one of the company's biggest investors.
Icahn and two allies won seats on the Blockbuster board and forced Antioco out in 2007 following a dispute over his compensation.
Icahn, whose Icahn Associates Corp owns nearly 8 percent of Blockbuster according to Thomson Reuters data, has seen the company's share price fall from $18 per share when he began buying in 2004 to 23 cents on Tuesday.
Blockbuster shares were halted about 90 minutes before the market closed on Tuesday, and closed down 73 cents, or more than 76 percent, while shares of online arch-rival Netflix jumped more than 13 percent before easing to close 5.9 percent higher at $36.36.
Analysts had mixed reactions to reports of a potential bankruptcy and to Blockbuster's insistence that it would not file.
"Blockbuster has been facing some liquidity issues for a while now and this is one of the options they have. It's not a great one," said Edward Woo, Wedbush Morgan Securities.
Tony Wible, media and entertainment analyst for Janney Montgomery Scott, urged investors to buy the company's shares, saying it was too early to talk bankruptcy and that the company could pay the loans coming due with its own capital.
As increasing numbers of customers migrate to video downloads or mailed rentals, Blockbuster is struggling to reinvent itself while also restructuring hundreds of millions of dollars in debt.
Executives had said in November that the firm would face challenges refinancing its debt.
"While it's unnerving to see such a drastic move in the stock, this move creates an unique buying opportunity," Wible wrote in a note to clients on Tuesday.
(Reporting by Emily Chasan and Gina Keating; Additional reporting by Sue Zeidler; Editing by Edwin Chan, Gary Hill and Bernard Orr)
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