NEW YORK – Blockbuster Inc., the movie-rental company that filed for bankruptcy Thursday, won court permission to draw $20 million of a $125 million loan that will let it operate while it reorganizes to emphasize online rentals.
U.S. Bankruptcy Judge Burton Lifland approved the loan at a hearing in Manhattan. Dallas-based Blockbuster said it will only spend $10 million before Sept. 27. The company said in its Chapter 11 petition that it had agreed with a group of bondholders on a plan of reorganization and secured the loan to finance operations in the meantime.
In view of the bondholder support, the company expects to be able to restructure and “ensure its long-term viability,” said Stephen Karotkin, a lawyer for Blockbuster.
The company, which has six stores in Spokane and Kootenai counties, sought bankruptcy protection after failing to adapt its storefront model to Web technology pioneered by rivals such as Netflix Inc. Sales at Blockbuster, with about 3,000 stores in the United States, shrank 20 percent last year while Netflix grew and Coinstar Inc. put Redbox DVD vending machines in supermarkets and drugstores.
Blockbuster has not made any decisions about store closings, which will be “a consideration” during the bankruptcy case, Chief Executive Officer James Keyes said in an interview after Thursday’s hearing.
“We’ll literally be evaluating every single store,” he said. He said he hopes the company will emerge from bankruptcy in the first quarter. “The objective is as quickly as possible,” he said.
The judge approved only a portion of the loan to give creditors time to review terms of the loan. Blockbuster initially sought approval to borrow $45 million of the bankruptcy loan. It will return to court Sept. 27 for permission to draw another $25 million before seeking approval of the entire loan.
Under the proposed reorganization plan, there will be no recovery by the holders of the company’s outstanding subordinated debt, preferred stock or common stock, Blockbuster said in a statement. The company listed assets of $1.02 billion against debt of $1.46 billion in its Chapter 11 petition.
Its largest trade creditor is Twentieth Century Fox Home Entertainment with a $21.6 million claim, followed by Warner Home Video Inc. with a claim of $19 million and Sony Pictures Home Entertainment with a claim of $13.3 million, according to today’s filing. Among others waiting to be paid by Blockbuster is the advisory firm Moelis & Co., owed $254,050.