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Creditors blast "pittance" bid for bankrupt Blockbuster
March 1, 2011 / 4:31 PM / 7 years ago

Creditors blast "pittance" bid for bankrupt Blockbuster

* Landlords, suppliers oppose Blockbuster auction

* Creditors say sale process only benefits Monarch

* Creditors want changes or liquidation

By Tom Hals

WILMINGTON, Del., March 1 (Reuters) - 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 chain.

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)

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