Blockbuster Receives Forbearance After Skipping $42.4 Million Bond Payment
Blockbuster Inc., the money-losing movie-rental chain, said bondholders agreed to let the company defer a $42.4 million payment on its 11.75 percent notes until Aug. 13 as the company considers options for recapitalization.
The company, which has lost more than $1 billion in the past three years amid store closings and declining sales, said in a statement today that holders of about 70 percent of the $675 million in senior secured notes agreed to the forbearance.
Blockbuster is working with creditors on a possible recapitalization as its business loses ground to newer competition in DVDs, including Netflix Inc. and Coinstar Inc.’s Redbox kiosks. Dallas-based Blockbuster, which reported a 20 percent drop in sales last year, has about $900 million in long- term debt, including the 11.75 percent notes due in 2014.
The forbearance today was granted on a $23.9 million amortization payment and an $18.5 million interest payment, and can be extended, the company said.
In April, Blockbuster said it won more favorable DVD terms from News Corp.’s Twentieth Century Fox and Sony Corp.’s film studio, part of a drive to cut costs. In exchange for the new payment terms, the studios get a first lien on Blockbuster Canada Co. assets. Blockbuster Canada will continue to operate as usual, the company said.
Shares Halted
Trading in Blockbuster shares was halted today and the company said it will be delisted from the New York Stock Exchange. The shares were last quoted at 23 cents, giving the company a market value of about $47 million.
The company said it extended the contract of Chairman and Chief Executive Officer Jim Keyes, which was scheduled to expire July 1. Keyes was paid a $750,000 salary for 2009, and given a $400,000 bonus for helping to negotiate the $675 million bond sale in September, the company said in proxy documents. The company didn’t disclose terms of his contract extension.
“I have reaffirmed to the board and our management team my commitment to facilitate the recapitalization and to continue the business transformation of Blockbuster,” Keyes said in a statement.
Blockbuster also said today that shareholders rejected a proposal for a reverse split of the shares that was needed to preserve its New York Stock Exchange listing.
Fewer than half of the 289.9 million Class A and Class B votes were in favor of a split, the company said in a statement. Blockbuster said on June 24 that shareholders had backed the plan. Shareholders also rejected a proposal to consolidate the Class A common shares, which have one vote, and Class B common shares, which have two votes.
Blockbuster’s 11.75 percent notes were quoted at 64 cents on the dollar yesterday, according to Trace, the bond reporting system of the Financial Industry Regulatory Authority.
To contact the reporter on this story: Ronald Grover in Los Angeles at rgrover5@bloomberg.net.
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