Video-rental chain Blockbuster finally filed for Chapter 11 bankruptcy protection with over $900 million of debt. Blockbuster which had been struggling with a rapidly changing video rental market and a declining economy took drastic measures to try to save its company outside of bankruptcy. The company closed 1,061 stores nationwide and cut general and administrative expenses by $333 million last year; but it wasn’t enough to stop the video rental giant from sinking and becoming further mired in debt. After billionaire investor Icahn purchased a significant amount of the company’s debt, bankruptcy became imminent.
Blockbuster’s Chapter 11 Bankruptcy Plan
If approved by the bankruptcy court, Blockbuster’s prepackaged bankruptcy plan will whittle the company’s $900 million debt down to $100 million. It will also help the company close up to 800 unprofitable stores and escape stiff penalties related to breaking those leases. Also, Blockbuster will reportedly close its operations in Argentina which has proven to be a money-losing venture. With the agreement of 80 percent of its senior creditors, the company will be able to discharge $300 million in subordinated debt and will receive a new $125 million debtor-in-possession loan which will allow them to continue to pay suppliers and employers as they make their way through the bankruptcy process.
The most important aspect of the Chapter 11 bankruptcy plan is that the company will be able to retain the Blockbuster brand and continue to leverage it as they work hard to increase their sales, create a new business model and thrive after they emerge from bankruptcy. The Blockbuster CEO has expressed confidence that Icahn and others senior bondholders are invested in Blockbuster’s long-term future.