Blockbuster raises bankruptcy as possibilty
LOS ANGELES (Reuters) - Video-rental chain Blockbuster Inc said on Tuesday for the first time it may need to file for bankruptcy protection after years of struggling to lessen its debt load.
The company's shares fell 10 cents to 30 cents in after-hours trade.
Blockbuster also said on Tuesday its auditors have raised doubts about its ability to operate as a going concern -- as the company had warned investors a month ago they would.
The once-mighty video chain, which reported a fourth quarter net loss of $434.9 million, has been trying to diversify into new distribution channels as rentals and sales at its 6,500 stores worldwide continue to dwindle amid challenges from the Internet, by-mail movie-rental services like Netflix Inc and kiosks from Coinstar Inc's Redbox.
Wedbush Morgan analyst Michael Pachter said it was important to note that Blockbuster's possible move toward bankruptcy was voluntary.
"The key here is that it would be voluntary bankruptcy filing. Blockbuster is not being compelled at this point in their effort to continue to run the business and salvage what they've got," said Pachter.
In a filing with the U.S. Securities and Exchange Commission, the company, which has been talking with several advisers to explore ways to recapitalize its $1 billion debt load, said it was pursuing an exchange of all or part of its senior subordinated notes for Class A common stock, which could require it to file for protection under the U.S. bankruptcy code.
"Our level of indebtedness may make it more difficult for us to pay our debts as they become due and more necessary for us to divert our cash flow from operations to debt service payments," the company said in its filing.
The company also said it was in talks with major studios to keep existing credit terms by pledging unencumbered Canadian assets as collateral.
Blockbuster has been attempting to sell international operations as a way to generate more cash.
(Reporting by Sue Zeidler; Editing by Edwin Chan and Steve Orlofsky)
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