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) -- The long-awaited



bankruptcy filing came in the wee hours this morning. For the company, the Ch.11 restructuring will allow them to cut debt by nearly $900 million while continuing to operate stores and kiosks.

For shareholders and investors holding subordinate debt, who stuck by the company through the past year of bankruptcy scares and ongoing discussions, well they are out of luck.

Shareholders have complained they have been left in the dark throughout this process, and have set up a forum,, to vent these frustrations.

One shareholder, Niko Celentano, sent a letter to CEO Jim Keyes last month, after reports surfaced that a bankruptcy filing was imminent. In the letter he said "With the news out now that Blockbuster is looking to file a bankruptcy, you have left us no choice but to prepare our legal representation should this occur and we as shareholders, not be included in any settlements. Please understand this loyal group of shareholders has stuck with the company through this tough time and fully expect to be part of the turnaround that is ahead."

Now shareholders are demanding CEO Jim Keyes resign. Celentano sent an e-mail this morning to the company: "Jim Keyes and all involved will be held accountable for their actions that led to this today," he writes. "Jim Keyes and his BOD's have failed all shareholders in their fiduciary responsibilities due to them. Jim Keyes is the main reason Blockbuster is in this position today due to his denial of being in a business model that did not work anymore. If Jim Keyes would have seen the changes that were evolving in this industry in the past few years Blockbuster would not have been in the courts today filing Chapter 11 bk protection.... Jim Keyes has failed in his job as CEO of Blockbuster and should resign immediately."

More than 80% of the company's senior noteholders have agreed to support the plan and provide $125 million in "debtor-in-possession" financing to help support Blockbuster's operations while it undergoes the restructure.

A bankruptcy court in Manhattan gave Blockbuster permission this afternoon to utilize $20 million of that $125 million,


reported. The company said it will only spend $10 million of that before Sept. 27.

Under the plan bonds will be converted into equity.

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The only debt that will be left on Blockbuster's balance sheet once it emerges from bankruptcy will be whatever it draws from the $125 million debtor-in-possession financing. That will convert to an exit loan and a new exit revolving credit facility of up to $50 million.

The restructure does not include Blockbuster's international operations, and in a separate release Blockbuster Canada said business will go on as usual.

But Blockbuster did say in a statement that it will no longer provide funding to support its operations in Argentina, which have been struggling.

"After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business model to meet the evolving preferences of our customers," CEO Jim Keyes said in a statement.

Fitch Ratings downgraded its debt rating on Blockbuster after the filing to "D" from "RD," and withdrew the ratings on Blockbuster's $630 million senior secured notes and $300 million senior subordinated notes.

Fitch expects to withdraw its issuer default rating on the company within 30 days.

Billionaire investor

Carl Icahn

will most likely be involved in helping to shape this restructure. According to the

Wall Street Journal

, Icahn bought up one-third of the company's highest-priority debt, which would give him veto power in any plans.

Blockbuster has been struggling to make debt payments, pushing off a $42 million payment two times over the summer. It was scheduled to make that payment on Sept. 30.

While right now Blockbuster will continue operations, the company did say it will reevaluate its portfolio of over 3,000 stores.

Rival Movie Gallery filed for Ch. 11 protection earlier in the year, but ultimately ended up liquidating its assets.

--Written by Jeanine Poggi in New York.

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