Once again rumors are buzzing that Blockbuster, the struggling home video rental company, is preparing to file a Chapter 11 bankruptcy in mid-September.
Executives from Blockbuster and its senior debt holders last week held meetings with the six major movie studios to discuss their intention to enter a "pre-planned" bankruptcy in mid-September, said several people familiar with the situation who requested anonymity due to the sensitivity of ongoing talks.
Blockbuster is hoping to use its time in Chapter 11 to restructure a crippling debt load of nearly $1 billion and escape leases on 500 or more of it 3,425 stores in the U.S. Maintaining the support of Hollywood's film studios during the process will be critical so that Blockbuster can continue to rely upon an uninterrupted supply of new DVDs.
A "pre-planned" or what's more commonly known as a prepackaged bankruptcy would allow Blockbuster to get its major bondholders on board with the plan to repay their debts in Chapter 11 bankruptcy. A prepackaged bankruptcy could also allow the embattled company to exit Chapter 11 bankruptcy within five months if no major challenges are raised by junior bondholders who will likely lose the most in a Blockbuster bankruptcy filing. If Blockbuster is in fact planning their bankruptcy filing, it will be critical that they keep in place two essential elements, the willingness of major movie studios to continue working with the company despite the unavoidable losses they will suffer with store closings and the creditors' willingness to accept significantly less than what they are owed so that they can possibly earn more in the future. But even after a Blockbuster Chapter 11 bankruptcy, if in fact they choose to do so, they will still need to have enough financing to successfully survive the process and to accomplish this, they need to convince investors that they are still a sound, viable and a potentially profitable company.