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Tuesday, July 06, 2010
Tags: Retail news   



Blockbuster 11.75% bonds dip on forbearance agreement
Blockbuster’s $675 million of 11.75% secured notes slid two points this morning, to 62/64, as investors reacted to last night’s news that the company was pushing off $42.4 million in interest payments until Aug. 13 and is being delisted from the New York Stock Exchange, sources said. Blockbuster’s $300 million of 9% subordinated notes were up one point, at 8.5/9.5, from 7.5/9 yesterday.
At the same time, Standard & Poor's today lowered its corporate credit rating on Blockbuster to SD, from CC, and the rating on the company's 11.75% senior secured notes due Oct. 1, 2014 to D, from CC. The recovery rating on the senior secured debt remains at 3, indicating S&P’s expectation for meaningful (50-70%) recovery for note holders.
As part of the 45-day forbearance agreement, which was agreed to by approximately 70% of its senior secured noteholders, Blockbuster must hire a chief restructuring officer by next week. The $42.4 million of payments (a $23.9 million amortization payment, including a 6% redemption premium, and an $18.5 million interest payment) were due on July 1, 2010.
S&P stated in its ratings report, “It is unclear whether the company will make these payments in the future, given that Blockbuster stated in its press release and Form 8-K filing that not making the payments and entering into the forbearance agreement were in the best interest of company and its stakeholders, as it continues its ongoing exploration of recapitalization opportunities and transformation of Blockbuster. In addition, it is unclear whether the company will be able to meet its obligations on its $300 million of 9% senior subordinated notes due Sept. 1, 2012.”
Distressed investors worry that Blockbuster has been in the process of developing restructuring strategies for more than three months now, and nothing has been announced. The latest rumors include an equity infusion from its bondholders, but nothing has been formally brought to the table.
Dallas-based Blockbuster shares were off more than 20%, to $0.18 per share in midmorning trading, and are in the process of being delisted because they have traded below $1 for more than 30 days. Blockbuster earlier this week was unsuccessful it a reverse stock split that would have prevented the delisting, as revealed in a SEC document.
Since March 16, when the company first hinted that its restructuring strategy could include a prepackaged or other type of Chapter 11 filing, both the 11.75% senior notes and the 9% subordinated notes have lost 12 points in the secondary market. In mid-March, the senior notes due 2014 were at 74/76, and the sub notes due 2012 were at 20/21.
Blockbuster must hire restructuring officer
Blockbuster Inc. must hire a restructuring officer, under terms of a forebearance agreement it reached with debt holders. The Dallas-based video rental company disclosed the requirement in a Securities and Exchange Commission filing Friday morning.
The officer will assist with all restructuring initiatives and must provide weekly executive summaries, including cash flow forecasts, each Thursday to a trustee, attorneys and financial advisers, the filing said.
Yesterday, following news that it had been delisted by the New York Stock Exchange, Blockbuster announced that it had secured an agreement with a group of creditors to delay collection on two payments totaling $42.4 million. The lenders said they will hold off collections on those debts until at least August 13.
Rod McDonald, secretary and general counsel of Blockbuster, said it was a positive sign for the company: "We feel good the forbearance itself is evidence of the ongoing support of 70 percent of the bondholders."
He noted, however, that a Chapter 11 bankruptcy reorganization is not off the table.
"That's been one of the contingencies that we have to prepare for," McDonald said. "We are optimistic about other opportunities, but we can't afford not to be prepared."


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