Blockbuster files for Chapter 11 protection

Blockbuster, the loss-making DVD rental chain, has filed for Chapter 11 bankruptcy protection in the US, after being hammered by online rental film services such as Netflix and DVD mail order companies.

But the company should swiftly re-emerge after a restructuring deal was agreed with creditors who include the veteran US investor, billionaire Carl Icahn.

Icahn is among a number of bondholders who will swap debt for equity in a revamped company that should emerge with borrowings of little more than $100m. He owns about one-third of Blockbuster's senior loan notes, but stepped down as a director of the company six months ago to play a major role in restructuring talks.

Blockbuster's "pre-arranged" bankruptcy protection move is designed to give it time to recapitalise its US operations and to focus on its growing online business.

Non-US subsidiaries are not involved in the bankruptcy proceedings, but hundreds more American stores could close on top of the 500 that have shut in the last year.

The chain, which has 600 shops in the UK, is creaking under $900m of debt and has faced management upheaval in recent years.

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