Billionaire investor Carl Icahn has bought about one-third of Blockbuster Inc. bonds in an effort to influence the video-rental company's fate if it files for Chapter 11 bankruptcy, according to unnamed sources knowledgeable of the matter. Blockbuster, which is saddled with more than $900 million in debt and operating under a second forbearance from its lenders, is rumored to be contemplating Chapter 11 bankruptcy. The forbearance expires on Sept. 30 and Blockbuster may be forced to file Chapter 11 bankruptcy if it is not able to restructure its finances before that date.
If the video giant does file Chapter 11 bankruptcy, Icahn would be well positioned to dictate the restructuring of Blockbuster inside bankruptcy. But the billionaire would still need to work with other major investors to avoid a protracted bankruptcy riddled with litigation. Some analysts have predicted that Blockbuster would negotiate a prepackaged Chapter 11 bankruptcy, increasing its chances of surviving the bankruptcy process and emerging from bankruptcy quickly. But other analysts question the video giant's ability to attract the type of investors necessary to insure its survival because it is facing a radically changed business landscape where blockbuster's very business model has become virtually useless.
Mail-order and kiosk video rentals along with the newly emerging online streaming video market have challenged Blockbuster's dominance in the movie video market; but Chapter 11 bankruptcy could offer the company the financial flexibility to reshape its business model and by extension insure its future survival as a company. Now it's just a matter of finding the type of Chapter 11 bankruptcy investors willing to place their bets on the long-term viability of the movie rental giant.