Blockbuster Video Starts Bankruptcy Sale, Faces Rent Criticism
Blockbuster Video filed for bankruptcy last year, and is now beginning to sell off pieces of the business, even as complaints from landlords demanding rent continue to come in.
Westlaw News reports on the ailing video rental service that wasn’t able to keep pace with the changing DVD and video-on-demand markets. The recent reports say that Blockbuster has made an agreement with a limited liability company that will start to bid on parts of the company and begin courting interest from other bidders.
This part of the bankruptcy process starting the sell-off is called a “stalking horse” bid. The funds company, Cobalt, is formed with money from several capital management outfits.
The bid agreement in place is to buy most of Blockbuster’s assets for $290 million.
Blockbuster is also seeking permission from the bankruptcy court to auction itself off, according to Westlaw. The court would oversee the auction process.
Only a week ago, landlords managing properties occupied by Blockbuster raised demands for the company to pay rent that is past due. A group of four landlords are suing for the right to evict Blockbuster from 38 properties. These companies claim that around $339,000 is owed for overdue rent.
This is not the first call for money from Blockbuster, which has also been called upon by a major film studio to pay what it owes. That company produced the “Twilight” movie series.
The film company, Summit Distribution, wants payment for shipments of DVDs that went out after the video rental chain filed for bankruptcy. The amount owed is just under $7 million, and Blockbuster announced that it would not be able to pay the amount because the flailing company did not have the amount.
If Blockbuster is not able to pay, creditors want to see liquidation take place to pay off what is possible. According to the terms of the Chapter 11 bankruptcy, Blockbuster must pay rent on properties as they come due.
After the auction that would lead to its sale, a final sale approval hearing would take place. Such a hearing is predicted to happen before late April.
Blockbuster has said that operations at its stores in the U.S. and abroad will continue, including stores, mail and digital services and DVD kiosks.
The company was granted a $125 million loan at the time that it filed for bankruptcy protection, in order to maintain its operations. As of the first of the year, Blockbuster had yet to draw on this loan, even as it reported rises in its cash holdings.
Investor Carl Icahn and a group of funds made the loan. Icahn and his group are expected to make a bid to buy the company, including a swap of secured bonds that they own in exchange for ownership. Icahn is expected to be a player when the company goes up for auction in the near future.
Blockbuster has operations in Canada, Mexico, Denmark, Italy and the UK. These are expected to continue operations as well during the sale process, as well as independently owned brand franchises.
Blockbuster filed for bankruptcy last September.