* Landlords, suppliers oppose Blockbuster auction
* Creditors say sale process only benefits Monarch
* Creditors want changes or liquidation
By Tom Hals
WILMINGTON, Del., March 1 Bankrupt Blockbuster
Inc BLOAQ.PK plans to sell itself for a "pittance" and would
be better off liquidating rather than left under the control of
a hedge fund group, according to creditors of the movie-rental
More than 30 creditors, including suppliers and
bondholders, filed objections late Monday with Manhattan's
bankruptcy court. They oppose the proposed sale process for the
chain, which had nearly 3,000 stores when it filed for
bankruptcy in September.
The court will consider the company's request to approve
the auction procedures and the objections on Wednesday.
The company abandoned a reorganization last week and
instead, proposed the sale, setting up an auction with an
initial $290 million bid from a group of hedge funds led by
Monarch Alternative Capital.
The Monarch group, along with billionaire Carl Icahn, have
called the shots since the bankruptcy. They gained control by
providing a $125 million debtor-in-possession, or DIP, loan,
which set strict covenants and is supposed to be used to pay
for rent, supplies and other expenses during the bankruptcy.
To the surprise of the landlords and suppliers who are owed
millions since the bankruptcy started, Blockbuster has no
current borrowings under the DIP loan.
In an unusual move, the Monarch group has proposed not
paying a portion of what creditors estimate is $250 million of
unpaid expenses that have piled up during the bankruptcy.
"The debtors appear to have structured their bankruptcy
filing to allow Monarch, and the other distressed debt
investors that now hold the allegedly secured debt, to take
over the company for a pittance," according to a filing by Lyme
Regis Partners LLC, which holds the company's unsecured bonds.
A Blockbuster spokesman had no immediate comment. Monarch
did not immediately return a call for a comment.
The retailer has said it does not expect much recovery for
claims beyond the company's secured bonds, which are mostly
held by Icahn and the Monarch group.
Lyme Regis noted that the company continues to do well in
bankruptcy, boosting its inventory and equipment by more than
$100 million and piling up $68.6 million in cash as of Jan. 30.
It had $38.3 million in cash when its bankruptcy started.
The company on Jan. 30, listed about $1 billion in assets.
In addition to the cash, it included a rental library worth
$178.7 million, merchandise inventory of $96.9 million and
ownership of foreign operations valued at $280.6 million.
The official committee of unsecured creditors requested
changes to the proposed sale procedures. Barring those changes,
it wants the bankruptcy to be converted to a liquidation, under
the control of a court-appointed trustee.
The case is In re: Blockbuster Inc, U.S. Bankruptcy Court,
Southern District of New York, No. 10-14997.
(Reporting by Tom Hals, editing by Maureen Bavdek)