* Agreement saves company from Chapter 7 liquidation
* Sale to proceed with first bid from hedge fund group
* Blockbuster proposes April 4 sale auction
(Adds details on sale and auction dates throughout)
By Caroline Humer
NEW YORK, March 10 Blockbuster Inc BLOAQ.PK will
proceed to a sale auction in April after the bankrupt video rental
chain negotiated an agreement with creditors who had called for an
immediate Chapter 7 liquidation.
A group of hedge funds led by Monarch Capital reached an
agreement with creditors including Hollywood studios over the
terms of the sale auction.
The studios including Disney Co (DIS.N) had said the original
sale plan shortchanged them. Together they are owed more $100
They and other creditors including the U.S. Trustee, a
Department of Justice official, had asked the judge to convert the
bankruptcy to a Chapter 7 liquidation, which essentially is a
going out of business sale.
The judge, Burton Lifland, said he was "going to greenlight"
the proposed sale plan and ruled against converting the bankruptcy
to a Chapter 7 liquidation.
Lifland helped prompt the talks by making it clear he had
concerns about the original sale proposal, which could have left
many creditors with nothing.
The agreement sets up an auction which the company proposed
for April 4 followed by a court hearing to approve the sale on
The sale could preserve Blockbuster's ongoing business,
although the buyer may have the option to shut down all or parts
Blockbuster, which has 2,500 locations, filed for bankruptcy
in September after years of struggling to keep up with competition
from Netflix Inc (NFLX.O) and online offerings.
The Monarch group submitted an initial bid for $290 million.
The company listed assets of around $1 billion in its most recent
disclosure, for Jan. 30.
The judge told lawyers for billionaire investor Carl Icahn
their client could bid at the auction. A bondholder wanted to
prevent Icahn from bidding, arguing he was an insider because he
served on the company's board last year.
"If you've got a deep pocket, empty it out at the auction,"
the judge said during the hearing, which was delayed for hours for
the negotiations over the sale proposal.
The judge still has to approve the agreement in writing as
well as the sale and auction dates.
The case is In re: Blockbuster Inc, U.S. Bankruptcy Court,
Southern District of New York, No. 10-14997.
(Reporting by Caroline Humer; Writing by Tom Hals; Editing by