Movie rental company Blockbuster (BBI, news, msgs) might not be able to stay in business if it doesn't reach an accord with its creditors, the company said in an SEC filing late Monday.
"While we believe that . . . we will be in a position to close on the amended credit facility on or about May 11, 2009, there can be no assurance regarding these matters," the filing said. "The risk that we may not successfully complete this refinancing . . . raises substantial doubt about our ability to continue as a going concern."
"I didn't think it'd come this soon," Argus Research analyst John Staszak said. But, noting Blockbuster's shaky finances and continued difficulties, he said he was not surprised.
But another analyst scoffed at the idea of Blockbuster going bankrupt.
"They have three years before they have an issue," Wedbush Morgan Securities analyst Michael Pachter said. "They generate enough cash to fully service all of their debt until July 2012. My guess is they'll restructure that debt well before then."
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Blockbuster is struggling to renegotiate the terms of a $250 million revolving- and term-loan agreement. The company has until May 11 to complete the deal. The company had total debt of $780.9 million under its credit facilities and senior subordinated notes as of Jan. 4, according to the SEC filing.
"The market doesn't think they're doing well," but the company is fine, Pachter said. "What we're seeing in the market is that credit markets are frozen and investors are intolerant of any company that owes anything. They're just worried."
Shares of Blockbuster were down 11 cents, or 12.5%, at 77 cents this afternoon. The company operates 7,400 stores globally.
Teaming up with TiVo
Last month, Blockbuster said it was teaming up with TiVo to deliver movies through digital video recorders, an effort to catch up with Netflix (NFLX, news, msgs), which offered the service last year.Blockbuster customers would be able to rent new releases for $3.99 and older films for $1.99, the company said, with the ability to watch them right away through TiVo DVRs. Blockbuster customers had previously had to wait two to four weeks after the DVDs were released to buy or rent downloads, interim vice president of digital entertainment Kevin Lewis said in March.
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Last week, Chief Executive Officer Jim Keyes said the company would slow deployment of its new "Rock the Block" store format, which highlights video games and consumer electronics.
The truth of the matter is that DVDs aren't going away, Pachter explained. "It's not in the (movie) studios' best interests to make them go away. There is this overriding perception that, because Apple (AAPL, news, msgs) and Amazon.com (AMZN, news, msgs) want to do movie downloads, the movie companies will get rid of DVDs," in effect, putting Blockbuster out of business. But "Joe Six-Pack is still renting movies. People are trading down in the recession, and Blockbuster is doing fine," Pachter said.
Netflix knocking?
Blockbuster has struggled to compete with movies on demand and movie-delivery company Netflix, was late to join the innovative distribution method that Netflix launched and invested too much time and money in other endeavors, such as a set-top box.More from MSN Money
"Anyone who has stuck with Blockbuster since 2000-2002, when Netflix took off, has no incentive to switch now," Pachter said.
Blockbuster has also been trying to fend off competition from rivals including Redbox Automated Retail, a company that rents movies for just 99 cents per night by using vending machines in supermarkets and other big retailers.
Blockbuster is also experimenting with some 99-cent rentals and rolling out its own vending-machine program with partner NCR (NCR, news, msgs).
Pachter was optimistic about Blockbuster's future: "If the rental market continues to be stable, this is a great investment," he said.