Blockbuster Preparing for Bankruptcy?

Former video rental giant Blockbuster may be getting close to filing for bankruptcy as a way to escape a mammoth debt burden of over $1 billion. According to reports in the Los Angeles Times and elsewhere, Blockbuster representatives have been meeting with major movie studios to outline their plans for a bankruptcy filing that would see the company shuttering as many as 500 of its nearly 3,500 retail locations. If Blockbuster wants to keep its core rental business going during the bankruptcy, it needs to make sure its relationships with major studios are smooth so the company can continue to offer new movies and releases as they become available on DVD.

By planning the timing of a bankruptcy filing—and getting its major debtors and business partners on board with the plan before the filing—Blockbuster may hope to minimize disruption to its business operations and revenue streams.

Blockbuster has lost more than $1 billion since 2008, and has racked up over $900 million in debt. A good portion of the company’s revenue is going towards servicing that debt; a Chapter 11 bankruptcy restructuring would enable the company to escape a substantial portion of that debt burden in exchange for creditors taking over sizable portions of the company.

Earlier this month, Blockbuster cancelled its second quarter financial conference call and announced it had reached a forebearance agreement with its debt holders as the company moved to work out a recapitalization plan.

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