Blockbuster Can Take Bankruptcy Loan, Pay Studios
Blockbuster Inc., the world’s largest movie-rental company, won court permission to pay film studios’ claims and take an amended $125 million loan to fund operations in bankruptcy.
U.S. Bankruptcy Judge Burton Lifland in New York approved the loan today after it was changed to meet objections from creditors and landlords. New terms require Blockbuster to have a business plan approved by secured lenders on Nov. 30, the same day a description of the company’s reorganization terms is due.
In addition, pre-bankruptcy lenders won’t get potential proceeds from certain lawsuits, and the amount of pre-bankruptcy debt that lenders can roll into the new loan was cut to $125 million from $250 million.
“With those primary changes, it resolves the creditors’ committee’s objections,” Martin Sosland, a lawyer for Blockbuster, told Lifland.
The judge also approved paying movie studios amounts owed before Blockbuster filed for bankruptcy. In court papers, the Dallas-based company estimated it owed $68.5 million to studios that were secured lenders and $49.6 million to others.
A steady supply of new movies and games is the lifeblood of Blockbuster’s business, and studios could refuse to deliver products if not paid, the company’s creditors said in court papers supporting the motion.
Richard S. Kanowitz, a lawyer for the official committee of unsecured creditors, said changes to the bankruptcy loan will ensure that lenders can’t end the loan if Blockbuster doesn’t meet certain milestones every four weeks. He said the committee plans to pursue an investigation into the liens of secured lenders.
“It’s not like we’re going to sing ‘Kumbaya’ in the hallway; there are still things to work out,” Kanowitz told Lifland.
Lifland approved the hiring of Weil, Gotshal & Manges LLP, Sosland’s law firm, as Blockbuster’s bankruptcy counsel. Lyme Regis Partners LLC, an investor in Blockbuster notes, had objected to the law firm’s hiring, saying its relationships with movie studios mean it isn’t “disinterested.”
“Clearly there’s no current conflict,” the judge said. “It’s dubious whether in the future there would be a conflict.”
If one arises, another firm can serve as counsel on that matter, Lifland said.
Alvarez & Marsal LLC was also approved to provide Blockbuster’s chief restructuring officer, Jeffery J. Stegenga. A motion to hire Rothschild Inc. as financial adviser was approved after Lifland ordered the excision of a clause that would allow the firm to collect overhead expenses and pay advisers not approved by the bankruptcy court.
The U.S. Trustee, an arm of the government that oversees bankruptcies, had objected to Rothschild’s request, noting that Blockbuster would have to agree to also pay for legal counsel to Rothschild.
The Rothschild application included a request to be paid a $125,000 monthly fee, a fee of 1 percent to 4 percent of money raised for Blockbuster, a recapitalization fee of $3.1 million payable upon refinancing, and a mergers and acquisitions fee.
The case is In re Blockbuster, 10-14997, U.S. Bankruptcy Court, Southern District of New York.
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