Rumors are swirling that Blockbuster is preparing to file bankruptcy in September. According to some in the home entertainment business, Blockbuster is expected to announce a forbearance agreement with select creditors soon as it is prepares to for a possible Chapter 11 bankruptcy filing. Blockbuster’s tango with a possible bankruptcy became public in April of 2009 when they revealed that they were struggling with $781 million in debt and that they were going to close nearly 1000 stores. Blockbuster has already been delisted by the New York Stock Exchange on July 1st after entering into a forbearance agreement with creditors to avoid having to pay out a $42 million interest payment; but the agreement is due to expire on August 13, 2010.
Some business analysts are predicting that Blockbuster will enter into new forbearance agreements with unsecured creditors to keep them from triggering provisions that would force the company into an involuntary Chapter 7 bankruptcy. A Chapter 7 bankruptcy would almost certainly lead to the complete liquidation of the company. And while some are predicting that Blockbuster is preparing a “prepackaged bankruptcy” they are also saying that a prepackaged bankruptcy could be a tough sale because it requires all of the company’s creditors to agree in advance and the more creditors involved the harder it is to reach a consensus. On the other hand, if the company is able to recapitalize they may be able to avoid bankruptcy, but the likelihood of that is looking slimmer. Blockbuster is basically lagging behind its competitors because it has failed to innovate and keep up. This act alone has caused profits to shrink and made it impossible for the company to guarantee that they will not file bankruptcy in order to give themselves a fighting chance at survival.