Blockbuster Bankruptcy

							By MIKE SPECTOR And JOANN S. LUBLIN

Blockbuster Inc. is asking creditors to put up more money to help it exit bankruptcy protection,
prompting a debate among bondholders about whether to invest further in the struggling video chain or
put it up for sale, people familiar with the matter said.

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Associated Press

A Racine, Wis., Blockbuster store, shown during a closing sale in March.




When Blockbuster filed for Chapter 11 protection in September, the company already had agreed to
turn ownership over to its creditors. But after poor holiday sales and new estimates for a costlier
turnaround, the company is asking bondholders for an additional $200 million to $250 million to be used
after the chain exits court protection.

The discussions on the additional funds have just begun and the two sides haven't determined a "hard
number" for the desired amount, one of the people said.

The bondholders are led by billionaire investor Carl Icahn and hedge-fund Monarch Alternative Capital
LP. The people familiar with the matter said a sale could be an alternative to providing Blockbuster with
additional cash but that both sides remain focused on the company's current plan and financing needs.

The chain also is considering closing hundreds more stores, the people added. In the worst-case
scenario, that could mean closing as many as 1,000 of the chain's more than 5,000 remaining outlets.
Blockbuster already has closed about 1,000 locations over the past two years. No final determination
has been made, the people said.

Blockbuster didn't respond to requests for comment. Mr. Icahn and Monarch didn't respond to requests
for comment.

A deadline passed Friday for Blockbuster to outline its reorganization plan, provide a business plan to
bondholders and hire a new chief executive acceptable to those creditors. The two sides were in
discussions to extend that deadline, the people said.

The CEO search, which has been on since late last year, is unlikely to be completed until Blockbuster
"sorts out the capital structure and the ownership structure" of the company, one of the people familiar
with the matter said.

Amid pressure from cable-television providers, Netflix Inc. and Internet entertainment outlets,
Blockbuster generated 2010 earnings before interest, taxes, depreciation and amortization below $100
million, the people familiar with the matter said. That compares with more than $150 million in 2009.

The new cash and store closures would aim to give Blockbuster a liquidity cushion for the rest of the
year as it tries to transition from a predominantly bricks-and-mortar operation to streaming films online.
The company plans to emerge from bankruptcy nearly debt free by wiping out more than $900 million in
obligations to bondholders and wants additional equity to drive its continued restructuring efforts, the
people said.

Blockbuster is pinning its hopes on digital film delivery and expanded mail-order and kiosks businesses
to better compete with Netflix. It has deals with various partners to stream movies to cellphones and
Blu-ray players, among other devices.

Still, Blockbuster lags far behind its biggest competitors. Blockbuster had 1.2 million subscribers to its
DVD mailing service through the first nine months of last year, down from 1.5 million in the year-earlier
period. Netflix had 16.9 million subscribers during the same time period, up from 11.1 million a year
earlier.
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“ Netflix and RedBox were the one-two punch that knocked down Blockbuster. Face it, who goes to a
video store today to rent movies? ”

—David Soto

Blockbuster's need for more capital adds another wrinkle to a restructuring plan that was crafted just a
few months ago.

Mr. Icahn supports providing Blockbuster with as much as $250 million, the people familiar with the
matter said. Monarch is also inclined to invest more in Blockbuster, they said. Other hedge funds
holding the company's senior bonds are more reluctant about putting large amounts of money into
Blockbuster, the people said.

Amid these talks, bondholders have raised the prospect of putting Blockbuster up for sale, the people
said. In that scenario, one of the bondholders, such as Mr. Icahn or Monarch, could emerge as a so-
called stalking-horse bidder that sets a floor for bids in a bankruptcy-court auction. In a November
regulatory filing, Blockbuster warned it couldn't assure that bondholders would go along with its
reorganization plan, which could force the company to put itself up for sale.

Blockbuster could fetch around $400 million or so in an auction based on where its senior bonds trade
and the value of its inventory and real-estate, the people said.