Blockbuster Inc’s (BBI) stock is down a whopping 77% on the day and trading around $.22. It seems that the company has hired a bankruptcy firm to explore the possibility of a reorganization.

Update: Turns out Blockbuster isn’t filing for bankruptcy after all. Damn rumor mill.

From Bloomberg:

Kirkland & Ellis LLP was asked to evaluate restructuring options for the company, which may include a “pre-packaged” or “pre-arranged bankruptcy,” in which much of the restructuring work is completed out of court, the person said. A pre-packaged filing is more advanced than a pre-arranged bankruptcy as it includes agreements from creditors about the outcome of the company’s reorganization.

This just hit and we’ll keep you updated as it develops. Hopefully you didn’t take the plunge on Blockbuster’s movie streaming device; It might not work soon.

Update:

It turns out that Bloomberg’s source wasn’t correct on the purpose of Kirkland & Ellis’s hiring. The company doesn’t intend to file for bankruptcy but simply refinance for more capital. Trading on the stock was eventually halted based on the poor information causing the run on the stock.

From Bloomberg:

“We’ve hired them for refinancing and capital raising initiatives,” said Karen Raskopf, a Blockbuster spokeswoman. “We do not intend to file for bankruptcy.”

Blockbuster is working with Kirkland and Ellis on refinancing, Raskopf said. The company previously announced plans to fund its own operations through the end of 2009 after two of its credit facilities expire this August, she said.

So there you have it. No bankruptcy for Blockbuster right now.

[Thanks for the tip, Patrick]