Update: No Bankruptcy to be filed apparently. Bloomberg is headline hungry pessimism monger (unlike Zero hedge)
Blockbuster is following Movie Gallery into the bankruptcy void. Bloomberg reports that largest movie-rental chain has hired uber-bankruptcy law firm Kirkland and Ellis. Among the options K&E will have to evaluate are a pre-packaged and pre-arranged bankruptcy, ala what Masonite did earlier today. In an implicit victory for NetFlix, the rental chain will likely have to liquidate a substantial portion of its over 7,500 stores, and bankruptcy will provide the medium to break existing lease contracts.
This may just be the make or break news for Mike Zimmerman as he is trying to get hired as an entry level analyst at any mutual fund that will have him. Zimmerman's Prentice Capital was the largest investor in BBI, holding 10% of the stock, or roughly 12.2 million shares. If nothing else, this would make a for a totally impressive bullet point in his resume as a case study of how to annihilate what little value is remaining for whoever the unlucky souls were that had not yet pulled out their money.
Other notable believers in the "please rewind" policy are Icahn, Marathon and allegedly the Harvard endowment.
Update: Stock Halted
Unfounded rumor: Story is totally false and K&E retention will be downplayed by mgmt as BBI has no plan to file. Stay tuned
Update 2: GimmeCredit jumps on the bandwagon:
Blockbuster was reported to have hired legal counsel to explore a bankruptcy filing. While we had taken a dismal view of the company's business longer term, in our last report (12.12.08) we opined that if bond prices declined to below 50, investors should buy on weakness. Prices had remained above our inflection point until yesterday when they fell to 50 on some small size trades (TRACE). We are revising our view in light of the potential of a pre-arranged bankruptcy filing. We believe that if such an event occurs, bond recoveries will include a substantial portion of equity and bonds will trade down to reflect the loss of coupon payments.
Underlying View: [Deteriorating: -1] It is difficult to predict a possible turnaround for the slumping in-store rental business. Although Blockbuster had done a decent job recently of containing costs and bolstering liquidity, we are concerned that the company's recent quarter (fourth fiscal quarter) was much worse than we expected. While guidance still looked attainable in December, the news about a bankruptcy filing suggests actual results fell significantly short. Also, the company's revolver is coming due in August and there may have been a decision that it was not possible to refinance or self fund it.
Update 3: Rumor may be right: Briefing.com just out:
BBI: Blockbuster: Co Does Not Intend To File For Bankruptcy; LawFirm Helping With Capital Raising Initiatives - DJ (0.22 -0.74)[Update]NFLX has risen on earlier reports of BBI hiring Kirkland & Ellis forbankruptcy advice (BBI is halted)
Mike Zimmerman gets no reprieve, however, with such other blockbusters (no pun) as GAIA and RUS
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