10-K Watch: Blockbuster Warns Of Crushing Debt Problems; Chapter 11 Filing Remains A ‘Possibility’

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10-K Watch: Blockbuster Warns Of Crushing Debt Problems; Chapter 11 Filing Remains A ‘Possibility’

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A few weeks after reporting that its net loss grew in Q4, Blockbuster’s 10-k presents some stark details about its debt struggles. The movie rental chain’s SEC filing served as a warning of sorts, with Blockbuster (NYSE: BBI) saying that its roughly $1 billion in debt could become more difficult to pay down. As a result, Blockbuster may consider diverting more cash flow from operations to debt service payments. The company added it was pursuing an exchange of all or part of its senior subordinated notes for Class A common stock—something that could force it to seek Chapter 11 bankruptcy protection.

In the interim, the company is currently looking into selling off its international operations as way to ease the heavy debt burden.

Blockbuster is also remaining cautious in terms of pursuing the rental download model and video-on-demand. It has already closed several hundred retail outlets, while at the same time, it’s added 2,000 new Blockbuster Express kiosks. The company plans to rapidly expand that kiosk business to 7,000, which it considers riskier than downloads and VOD. The Blockbuster On-Demand service remains small, with MSO partners including Mediacom and Suddenlink.

During Blockbuster’s earnings call last month, chairman and CEO Jim Keyes said he was encouraged by Netflix’s and Redbox’s agreements with Warner Bros. (NYSE: TWX) on holding new releases for a 28-day window. If the other studios embrace that same window-release time frame, Keyes believes it will strengthen Blockbuster’s retail outlets, because most consumers’ activity around new DVDs tends to stick closely to the release date and then quickly drop off.

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By David Kaplan