Blockbuster keeps credit rating despite earnings warning

Blockbuster keeps credit rating despite warning

NEW YORK — Blockbuster Inc.’s junk bonds won’t be downgraded further despite the movie rental company’s warning that earnings for 2009 will come in well below expectations, a credit ratings agency said Friday.

Moody’s Investors Service said the company’s revised outlook and liquidity position still meet the requirements of its “Caa1″ grade for corporate family and probability of default ratings. Blockbuster’s outlook remains at “Stable.”

Blockbuster has $247 million in cash at the end of December, which Moody’s said was adequate liquidity over the next 12 months.

But if its finances deteriorate, Blockbuster faces a credit ratings downgrade.

Earlier this week, Blockbuster revised its earnings before interest, taxes, depreciation and amortization outlook for 2009 to $195 million to $205 million from $270 million to $290 million. Lackluster holiday sales is the culprit.

Blockbuster is struggling to adapt to a shift in consumer movie rental habits. People are increasingly going to rentals by mail or kiosk. Heavy discounting of DVDs by Wal-Mart Stores Inc. and changing technology over how movies are delivered also are taking a toll.

Moody’s is concerned that weak December sales is a sign that “the secular shift towards vending kiosks and online digital downloads may be higher than we expected,” said senior analyst Maggie Taylor.

Shares of Blockbuster, based in Dallas, fell 6 cents, or 11.9 percent, to 43 cents in afternoon trading. The stock was down 33 percent on Thursday.