Blockbuster shares dive after report that co. is mulling financing for possible bankruptcy

Blockbuster shares plunge after financing report

NEW YORK — The depressed shares of video rental chain Blockbuster Inc. lost more value Monday, on a report that the company is exploring, among other options, a type of financing that’s used to keep firms afloat in bankruptcy.

Shares of the Dallas-based company fell 6.3 cents, or 23 percent, to 21 cents in afternoon trading. Since 2002, the stock has steadily declined, and has traded below $1 since the fall of 2009.

Late Friday, The Wall Street Journal said Blockbuster is trying to line up a $150 million “debtor-in-possession” loan. The newspaper cited unnamed people familiar with Blockbuster’s talks.

Blockbuster stated Friday that it’s negotiating with lenders and “strategic investors,” but declined to be more specific. “We continue to have ongoing constructive dialogue,” the company said.

Blockbuster has already warned in regulatory filings that a bankruptcy filing is a possibility, although its management has stressed they are trying to find other ways to lighten a debt load totaling more than $900 million.

Blockbuster is exploring options as its losses mount amid stiff competition from video subscription service Netflix Inc. and Redbox’s DVD-rental kiosks.

Analyst Michael Pachter at Wedbush Morgan said that given that Blockbuster’s earnings before interest, taxes and depreciation are less than its interest payments, “it’s really just a question of when the creditors force a bankruptcy.” He expects the company to go through some form of restructuring this year.

A likely outcome is that creditors keep the chain going, since Blockbuster doesn’t have a lot of assets beyond its movie inventory, Pachter said. Blockbuster doesn’t own its own real estate, which means creditors stand to recover little if they force the company to liquidate.

“Keeping the patient alive is the best strategy,” he said. A bankruptcy filing would allow Blockbuster to renegotiate its rents, which could put it back in the black, he added.

There’s a chance Blockbuster has benefited recently from the demise of rival chain Movie Gallery, which is closing all its stores, Pachter noted.