It’s come to this: the success of Netflix and Redbox in the United States have driven Blockbuster, as expected, to file for bankruptcy protection after failing to adequately and swiftly adapt its movie-rental model from physical storefronts to mail-order and online technology pioneered by its aforementioned competitors.
The company filed a voluntary Chapter 11 petition today in U.S. Bankruptcy Court in New York, listing assets of $1.02 billion and debt of $1.46 billion. The company’s largest trade creditor is Twentieth Century Fox Home Entertainment with a $21.6 million claim, according to today’s filing.
The news, first reported by Bloomberg, comes almost 25 years after Blockbuster opened its first store (Dallas, Texas on October 26, 1985).
Blockbuster’s non-U.S. operations and its domestic and international franchisees, all of which are legally separate entities, were not included in the filings and are not parties to the Chapter 11 proceedings.
Blockbuster in a statement says it has reached an agreement with a group of bondholders, led by billionaire Carl Icahn, holding approximately 80.1 percent principal amount of its 11 3/4 percent senior secured notes on the terms of a plan to recapitalize its balance sheet and put it in a stronger financial position.
Blockbuster claims said plan would reduce its indebtedness significantly, from nearly $1 billion at present day to an estimated $100 million or less when implemented.
The company has secured a commitment of $125 million in new “debtor-in-possession” financing from the senior noteholders to help meet its obligations to customers, suppliers and employees in the ordinary course during the recapitalization process.
Blockbuster says all its U.S. operations, including its stores, DVD vending kiosks, by-mail and digital businesses, are open and serving customers in the normal course and that the company is fulfilling all orders as usual, including continuing to provide access to new releases the first day they become available.
For the time being, all 3,000 of the company’s stores in the United States will remain open. If I were you, I wouldn’t be too sure about your neighborhood video store sticking around for that much longer, however.
The company’s international operations in Canada, Denmark, Italy, Mexico, and the United Kingdom are also conducting business as usual – the only country where the axe is falling is Argentina, which Blockbuster says has experienced continued shortfalls in operating cash flow.