MONEY: Blockbuster struggling with debt, may file for bankruptcy

Blockbuster Inc. shares plunged further into penny-stock territory Wednesday after the struggling home-video-rental company, with stores in Eastern Iowa, said in a regulatory filing that it will likely file for bankruptcy if it's unable to address its debt load.

Shares of Blockbuster fell 13 cents, or 32 percent, to 27 cents a share. The company's market capitalization now totals about $34 million, or just a fraction of its fourth-quarter revenue of $1 billion. The company reported an operating loss of $394 million in the period.

Because of its losses and “the increasingly competitive industry conditions,” the company sees “substantial doubt about our ability to continue as a going concern,” according to the company's filing.

Blockbuster said if its operating results don't improve and if it is unable to refinance or restructure its debt, it “could require us to pursue a restructuring of our indebtedness or file for protection under the U.S. Bankruptcy Code.”

Blockbuster's debt, including capital lease obligations, totaled $964 million as of Dec. 31, according to its financial filings. The company issued a similar warning nearly a year ago, but was able to improve its liquidity through widespread store closings and amended agreements with creditors to delay debt payments.

As part of its plan to stave off bankruptcy, Blockbuster plans to close more stores and cut expenses by more than $200 million. It hopes to do a debt-for-equity swap with holders of its senior subordinated notes and intends to hold talks with holders of its Series A convertible preferred stock, the company said in the filing.

“Some form of default is probably only a matter of time,” Egan-Jones credit analysts said in a research note.

Since 2007, Blockbuster has racked up losses totaling more than $1 billion amid fiercer competition from other video-rental services, such as Internet-rental service Netflix and kiosk-operator Redbox, which sets up its boxes at grocery stores.

In 2009, Blockbuster closed 718 company-operated and franchised stores worldwide, including 572 in the U.S. It also sold its 184-store chain in Ireland.

Dallas-based Blockbuster and its franchisees operate 4,018 U.S. stores and 2,502 international stores. The company also has 2,225 video kiosks in the U.S. through a 2008 deal with NCR.

The video kiosk market doubled in value last year, growing to $917 million in total revenue, while the in-store rental market declined to $5.1 billion, from $5.7 billion, according to Blockbuster, citing figures from Adams Media Research.

The investment fund of noted activist Carl Icahn is Blockbuster's biggest outside shareholder, owning 10.8 percent, or 13.2 million shares. Goldman Sachs owns 12.1 million shares, or 9.9 percent of Blockbuster's common stock, according to regulatory filings.

Blockbuster operates Eastern Iowa stores at 3140 16th Ave. SW and 130 Collins Rd. NE in Cedar Rapids, at 1705 Boyrum St. in Iowa City, at 806 Wacker Dr. in Dubuque and at 6301 University Ave. in Cedar Falls.

-- Matt Andrejczak and Steve Gelsi, MarketWatch