Blockbuster files for bankruptcy

blockbuster.gi.top.jpgA Blockbuster store in San Francisco. By Annalyn Censky, staff reporter


NEW YORK (CNNMoney.com) -- Blockbuster filed for bankruptcy Thursday in its latest attempt to overcome nearly $1 billion in debt.

The movie rental store's U.S. businesses filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of New York. As part of its recapitalization plan, Blockbuster (BBI, Fortune 500) said it would attempt to reduce its debt load to $100 million or less.

In a release Thursday, the company said it has secured $125 million in financing from senior bondholders to keep its remaining U.S. businesses open during the bankruptcy proceedings.

Its stores, DVD vending kiosks, by-mail and digital businesses will continue serving customers. But the company will have to implement major cost-cutting measures to repay its investors, said Michael Pachter, an analyst with Wedbush Morgan Securities.

"Blockbuster is under the gun now to generate as much cash as possible," he said. "When they were run by shareholders, the company was making investments and trying to grow. Now that they've been seized by creditors... Blockbuster will have to manage the business as lean as possible."

Blockbuster has struggled for survival ever since media conglomerate Viacom (VIA) spun off the company in 2004. As a part of the deal, the company had to pay Viacom shareholders a $5 per-share dividend, and the movie rental giant racked up about $1 billion of debt in the process.

The company also suffered losses from unprofitable stores and increased competition from both Netflix (NFLX) and Coinstar's (CSTR) Redbox.

Blockbuster's advantage over its competitors continues to be its selection of new releases and large volume of titles in every store, Pachter said.

But customers who look for lower prices have turned to Redbox, and those who prefer the ultimate convenience of never leaving home often prefer Netflix's by-mail service, he said.

Blockbuster warned of a possible bankruptcy as early as March of this year.

To help solve its debt problems, Blockbuster began shutting down a third of its 4,500 U.S. stores last year, and now operates about 3,000 locations in the United States.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,880.36 -31.75 -0.19%
Nasdaq 4,462.90 20.20 0.45%
S&P 500 1,970.07 0.12 0.01%
Treasuries 2.55 0.09 3.74%
Data as of 6:52am ET
Company Price Change % Change
Bank of America Corp... 15.58 0.24 1.56%
Genworth Financial I... 13.98 -2.28 -14.02%
Facebook Inc 74.68 0.97 1.31%
Pfizer Inc 29.26 -0.21 -0.71%
Apple Inc 98.15 -0.23 -0.23%
Data as of Jul 30

Sections

KFC and parent company Yum Brands are facing yet another food scandal and public relations nightmare in China. More

The case involves bad mortgages sold by Countrywide Financial ahead of the Great Recession and its multi-billion dollar rescue by Bank of America. More

Restrictive immigration policies prevent talented entrepreneurs from launching businesses in the U.S. So, they're moving to Canada. More

The Mason family, which has been struggling to pay the $100,000 student loan bill they were left with when their daughter passed away five years ago, is now seeing an outpouring of support. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.