After filing for bankruptcy protection on Thursday, Blockbuster obtained approval on Friday to take a $20 million draw to allow it to reorganize its operations. It also obtained permission to continue paying employees and honoring customer reward programs.
In its Chapter 11 filings the company stated that a group of its bondholders had approved its proposed reorganization plans. Under those plans, only senior bondholders will receive any recovery of their investment. They will get to swap debt for equity in the new organization. Stockholders and subordinated debtholders will see no return on their investments.
Stephen Karotkin, a lawyer for Blockbuster, said that with senior bondholder support, the company expects to be able to restructure and “ensure its long-term viability.”
Since 2001 Blockbuster has suffered more that $4 billion in losses and has closed hundreds of its retail stores. In early July, 2010, it was delisted from the New York Stock Exchange. In its Chapter 11 filing it listed assets worth $1.02 billion and debt of $1.46 billion.
However, Blockbuster is planning to focus on online rentals during its reorganization. Given that plan and the fact that Carl Icahn’s company, Icahn Capital LP, is a senior creditor, there is some hope that its restructuring might actually work. Icahn will hold about 1/3 of the bankruptcy bonds issued by the company.
Consequently, according to details of the loan approval, Icahn Capital LP will have a significant say in how the new company will be run. It will have the authority to choose two directors of its liking and, with the approval of Monarch Alternative Capital LP and other noteholders, it will get to select a third director as well.
Carl Icahn has been a long time investor in Blockbuster and has fought for several years to gain control of the board. This restructuring should give Icahn the chance he’s been waiting for to make some changes.