Troubled video-rental chain Blockbuster Inc. filed for Chapter 11 bankruptcy protection, and said it plans to keep stores and kiosks open as it reorganizes.
The move, long expected and pre-arranged with bondholders, effectively ends an era that Blockbuster dominated — of Americans visiting video-store chains for the latest movie-rental releases. Increasingly, Americans are watching movies via video subscription services like Netflix Inc., video on demand and vending machine services such as Redbox.
In a submission to the U.S. Bankruptcy Court in the Southern District of New York on Thursday, the company said it reached an agreement with bondholders on a recapitalization plan.
Blockbuster plans to reduce debt from nearly $1 billion to about $100 million or less by swapping debt for equity in a reorganized Blockbuster with bondholders that hold about 80.1 percent of the company's senior notes.
It has received commitments for $125 million in "debtor-in-possession" financing from senior noteholders to repay customers, suppliers and employees during the reorganization.
"After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business model to meet the evolving preferences of our customers," said CEO Jim Keyes.
Blockbuster, founded in 1985 by a Dallas software entrepreneur, was once a home entertainment powerhouse. It helped popularize videotape recorders and took off in 1987 after Waste Management Inc. founder Wayne Huizenga took control and began aggressively expanding and buying up competitors.
But Blockbuster has been losing money and market share for years. As Netflix and other services gained popularity, Blockbuster tried to keep up. It ended late fees and started online and kiosk services of its own. But it was unable to keep its debt in check.
Hollywood Video parent Movie Gallery Inc., once the second-largest U.S. movie rental chain behind Blockbuster, also fell victim to changing movie-watching habits and filed for bankruptcy protection in February — it's second trip through bankruptcy court. It liquidated in August.
Blockbuster, based in Dallas, earlier this year said it would close hundreds of stores and said it was struggling with liquidity problems. It had warned investors it might file for bankruptcy protection and was delisted in early July by the New York Stock Exchange.
Blockbuster said Thursday its 3,000 stores in the U.S., DVD vending kiosks, by-mail and digital businesses will all continue to operate normally. Operations outside the U.S. and domestic and international franchisees are not part of the Chapter 11 reorganization.
Billionaire investor Carl Icahn will help steer the latest efforts to save Blockbuster, reviving a role he played previously in trying to shape up the company. He has thrust himself into position of power, this time by snapping up about one-third of Blockbuster's highest-priority debt, according to a report published Wednesday in The Wall Street Journal.
Blockbuster said in its filing it had about $1 billion in assets and $1.46 billion in debt.
Blockbuster's largest creditors include the Bank of New York Mellon, Twentieth Century Fox Home Entertainment, Warner Home Video Inc., Sony Pictures Home Entertainment, The Walt Disney Co., Universal Studios Home Entertainment and other movie studios.
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