September 18, 2009 / 12:58 AM / 10 years ago

Blockbuster CEO says financing should enable growth

LOS ANGELES (Reuters) - A round of capital-raising and refinancing has alleviated a cash-flow crunch at DVD rental chain Blockbuster Inc, enabling it to revive plans to reposition itself and get back on a path for growth, Chief Executive Jim Keyes said.

Loss-making Blockbuster is trying to ramp up its stores, kiosk, digital and by-mail offerings to compete against fast-growing rivals like kiosk provider Coinstar Inc’s Redbox and Internet rental site Netflix.

“The new financing will allow the company to make investments designed to grow the business,” said Keyes.

“This provides a great amount of flexibility. We now have more runway to complete the transformation of our business,” he said.

“In 2009, we’ve been cash flow starved, but we’ve just eliminated a lot of that pressure,” said Keyes, referring to the company’s doubling of a private note offering to $675 million on Thursday.

Blockbuster in May also completed funding on a $250 million amended and extended credit facility, slashing its required debt payment due 2010 to $90 million from $400 million.

“This gives them the lifeline they need,” said Stacey Widlitz, analyst with Pali Research, referring to the private note offering.

“Blockbuster was strapped for cash and had to skimp on inventory ... and that’s a huge swing factor for the company. They won’t be able to correct inventory overnight, but this should give them the flexibility to move toward having product back in stock in Q4 and Q1.”

Since mid-August, Blockbuster’s shares have risen about 50 percent to Thursday’s close of $1.39 a share.

Keyes said a pushback by various large Hollywood studios against rival Redbox — amid fears its $1 per night rentals at more than 17,000 automated kiosks is hurting business — should help Blockbuster as it moves ahead with its own plans to install 10,000 stand-alone DVD rental kiosks by end of 2010.

“Redbox will have difficulty in purchasing titles,” said Keyes, who said he supported Hollywood’s position for a “vending rental window,” which would keep hot new releases out of kiosks for a few weeks.

He said Blockbuster will now be able to continue ramping up its digital offerings to compete more effectively with rivals Netflix, cable and satellite TV operators and digital movie services like Apple Inc’s iTunes.

The company this week said it may close up to 960 stores by the end of 2010. But Keyes stressed the company may not have to close them all.

“If we can’t fix those, we’ll go ahead and close them,” said the former 7-11 CEO, noting he believed the brick-and-mortar store model will be around for years to come.

“The store, we believe, has the ability to remain relevant indefinitely if we continue to change it,” he said.

Blockbuster has said it may also convert up to 300 of its stores to outlets and up to another 300 were subject to lease mitigation or termination efforts.

Altogether, up to 1,560 of the company’s 3,750 U.S. stores are either subject to closures or other restructuring efforts, it has said.

Editing by Gary Hill

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