Message to Blockbuster: Declare Bankruptcy Already
Blockbuster's steadfast refusal to file for bankruptcy officially veered into the absurd this week, with the news that the company missed a $42.4 million payment owed its bondholders. Between that and the company's disclosure that shareholders rejected a proposal for a reverse stock split to shore up the sagging stock price, The New York Stock Exchange (NYX) halted trading in Blockbuster (BBI) shares, and said it is delisting the company.
What the heck is Blockbuster's management waiting for?
It should be clear as crystal by this point that no miraculous financial turnaround is going to keep Blockbuster solvent. It's lost $1 billion over the past three years and has about $900 million in debt, all while customers increasingly rent movies by mail or off their cable service or computer. Blockbuster officials have been beating the bushes for a financial savior for months with no takers. The company needs bankruptcy protection so the business can reorganize and start shedding store leases.
By continuing to draw out this downward financial spiral, the company is only worsening its situation and letting its debts grow. The uncertainty has to be sapping the morale of store-level workers. The longer this goes on, the more time employees spend standing around water coolers speculating about what will happen to their store, and the less time they spend helping customers rent movies.
But the board seems content to keep following head reality denier Jim Keyes, and announced it just extended his contract, which was due to expire July 1. Really? There goes an easy opportunity to change the guard and get someone in who understands the gravity of Blockbuster's situation.
Now this story is like one of those bad movies with multiple false endings that just keeps going on and on. The doomsday clock has been reset to Aug. 13, the date on which the extension Blockbuster's bondholders granted expires. If it can't get current with its payments by then, rating agency Fitch has said it will downgrade the company's credit rating to "default," further worsening the financial death spiral. Meanwhile, if Blockbuster had simply filed for bankruptcy earlier this year with a prepackaged plan, the company could have been well on its way to a turnaround already.
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