Blockbuster ( BBI) said it would seek to raise additional capital in a bid to slash debt.

The news came after the struggling company met with lenders to discuss modifications to its credit agreement.

The Dallas-based movie rental chain said the changes would give the company improved operating flexibility. As part of the modifications, Blockbuster said it will "pursue raising additional capital that will be used for working capital purposes including debt reduction."

Earlier this month, Blockbuster said third-quarter results, which will be announced in early November, will reflect that it is in compliance with its debt covenants for the third quarter. The company also said domestic same-store rental revenues for the third quarter of 2005 would significantly outperform the industry.

The news comes a day after rival Movie Gallery ( MOVI) said it would cut 100 jobs in an effort to cut costs.

Both companies have seen their shares plunge in recent months as Wall Street increasingly views the movie-rental business as endangered by online video rentals and the pay-per-view offerings of big cable companies.

On Wednesday, Movie Gallery shares fell 11 cents to $7.44 and Blockbuster dropped 24 cents to $4.85.

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