Blockbuster Bankruptcy Gets A Loan
Posted on Sep 28, 2010 9:34am PDT
As reported by Bloomberg, a $20 million dollar loan has been approved by U.S. Bankruptcy Judge Burton Lifland to assist the video retail chain, Blockbuster, reorganize and operate during its recent bankruptcy filing made on September 23, 2010.
The Manhattan court gave permission to Blockbuster to withdraw the $20 million from a $125 million bankruptcy loan. The Blockbuster company, based in Dallas, plans to spend ten million before September 27.
The Chapter 11 petition states that Blockbuster has agreed with a group of their bondholders on how to reorganize, and secured the loan to continue financing its operations.
Stephen Karotkin, a lawyer for Blockbuster, said that the support of the bondholders for the company's restructure will "ensure its long-term viability."
While the strength of Netflix rentals grew without storefronts, and Coinstar's Redbox DVD machines placed in supermarkets grew in retail sales, Blockbuster failed to increase its web presence - and recognize a growing trend - and drastically shrank back in the DVD rental market. Blockbuster has maintained approximately 3,000 retail stores while losing 20% of the market last year.
Chief Executive Officer for Blockbuster, James Keyes, said that though no decisions have been made, closing stores will be a consideration during the bankruptcy, "We'll literally be evaluating every single store."
Originally asking for $45 million from the bankruptcy loan, Blockbuster will return to court on September 37 to request another $25 million.
There will be no recovery by the holders of the company's outstanding subordinated debt, preferred stock or common stock, and senior bondholders will exchange their debt for equity in the company once it has been successfully reorganized.
According to a term sheet of the loan, senior creditor, Carl Icahn, of Icahn Capital LP, will have the authority to appoint two directors and only needs approval from Monarch Alternative Capital LP - and other noteholders - to select a third.
Monarch Alternative Capital LP will select another director as well, with two more members being agreed on with senior creditors Owl Creek Asset Management LP, Varde Partners LP and Stonehill Capital Management LLP.
The CEO/Director will be chosen by noteholders.
Bloomberg reports that Icahn, 74, purchased one-third of Blockbuster bonds on or before September 17.
In 2005 Icahn, leading a proxy fight, gained a board seat for himself and two others. He reduced his stock to 3.5 percent in March and left the board in January.
The Chapter 11 petition lists assets of $1.02 billion and a debt of $1.46 billion.
Blockbuster owes $21.6 million to Twentieth Century Fox Home Entertainment, $19 million to Warner Home Video, Inc., $13.3 million to Sony Pictures Home Entertainment and $254,050 to advisory firm Moelis & Co., among others.
Judge Lifland has given permission to continue to pay all of Blockbuster's staff, honor customer reward programs and maintain a cash-management system.
Filed in U.S. Bankruptcy Court, Southern District of New York, the case is In re Blockbuster 10-14997.
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