Blockbuster has filed for Chapter 11 bankruptcy protection in the US, as the one-time market leader in DVD rentals struggles to keep up with online competition such as Netflix and LoveFilm.
The move will mean Blockbuster will be able to keep its stores and kiosks open as it reorganises.
Increasingly, people are watching movies via video subscription services like Netflix in the US and LoveFilm in the UK.
In a submission to the U.S. Bankruptcy Court in the Southern District of New York on Thursday, the company said it reached an agreement with bondholders on a recapitalisation plan.
Blockbuster plans to reduce debt from nearly $1 billion to about $100 million or less by swapping debt for equity in a reorganized Blockbuster with bondholders that hold about 80.1 percent of the company’s senior notes.
It has received commitments for $125 million in “debtor-in-possession” financing from senior noteholders to repay customers, suppliers and employees during the reorganization.
“After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business model to meet the evolving preferences of our customers,” said CEO Jim Keyes.
Blockbuster, founded in 1985 by a Dallas software entrepreneur, was once a home entertainment powerhouse. It helped popularise videotape recorders and took off in 1987 after Waste Management Inc.
founder Wayne Huizenga took control and began aggressively expanding and buying up competitors.
But Blockbuster has been losing money and market share for years. As Netflix and other services gained popularity, Blockbuster tried to keep up. It ended late fees and started online and kiosk services of its own. But it was unable to keep its debt in check.
Blockbuster, based in Dallas, earlier this year said it would close hundreds of stores and said it was struggling with liquidity problems. It had warned investors it might file for bankruptcy protection and was delisted in early July by the New York Stock Exchange.
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