After dominating the home video rental business for more than a decade and struggling to survive in recent years against upstarts Netflix and Redbox, Blockbuster Inc. is preparing to file for bankruptcy next month, according to people who have been briefed on the matter.
Executives from Blockbuster and its senior debt holders last week held meetings with the six major movie studios to discuss their intention to enter a “pre-planned” bankruptcy in mid-September, said several people familiar with the situation who requested anonymity due to the sensitivity of ongoing talks.
Blockbuster is hoping to use its time in Chapter 11 to restructure a crippling debt load of nearly $1 billion and escape leases on 500 or more of it 3,425 stores in the U.S. Maintaining the support of Hollywood’s film studios during the process will be critical so that Blockbuster can continue to rely upon an uninterrupted supply of new DVDs.
Blockbuster has lost a total of $1.1 billion since the beginning of 2008 and has been severely hamstrung in efforts to grow its business due to interest payments on $920 million in debt. Earlier this month the company announced that most of its debt holders had agreed to a forbearance on interest payments until Sept. 30, during which time it would attempt a recapitalization.
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