NEW YORK (
is rallying following some optimistic words from CEO James Keyes regarding its bankruptcy scare.
Keyes told the
Dallas Morning Journal
on Thursday that despite an early warnings of the possibility of filing for bankruptcy, Blockbuster's situation hasn't changed much over the past year. This soothed some investor's fears, and is sending shares surging 9% to 30 cents in morning trading.
Blockbuster's stock dropped as much as 30% this week, following a Securities and Exchange filing where the company warned it might be forced to file Chapter 11 if cash flows don't improve and it is unable to restructure its debt. Blockbuster's reportedly has about $1 billion in debt. "These factors raise substantial doubt about our ability to continue as a going concern," Blockbuster said in the filing.
The SEC filing led two agencies cut their ratings on Blockbuster's stock. Fitch Ratings cut it to C from CCC and downgraded its $675 million in senior secured notes to CC/RR3 from B/RR2. Fitch also affirmed $300 million in senior subordinated notes at C/RR6, which it said reflects poor recovery prospects in a distressed case.
Similarly, Standard & Poors also downgraded Blockbuster's corporate credit rating to a "most speculative" grade of CC from CCC. "The CC rating indicates that, in our opinion, Blockbuster is highly vulnerable to default," said S&P in a statement.
While some are choosing to follow Keyes assurance, others are less certain Blockbuster will be able to, or even should, avoid bankruptcy.
"A voluntary Chapter 11 would enable Blockbuster to reduce its debt burden and interest payments to manageable levels and
allow it to implement its strategy for closing underperforming stores and building a digital distribution business," Needham analyst Charles Wolf says. "I can see why management is contemplating it."
-- Reported by Jeanine Poggi in New York.
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