|Flashback Blockbuster Annual Meeting Notes|
NEW YORK ( TheStreet) -- Blockbuster ( BBI) shares resumed trading Friday morning, but the threat of delisting still looms -- and is driving the stock ever-downward. Shares of the movie rental retailer are plunging 19.8% to 18 cents, following an announcement last night that the New York Stock Exchange may begin delisting the stock. The company said shareholders failed to approve a recapitalization plan, which included combining Class A and Class B common stock or the option for a reverse stock split, which was necessary to comply with listing requirements. As a result, NYSE halted trading of Blockbuster on the Big Board Thursday afternoon.
Management previously assumed that it had secured the necessary votes during its annual meeting last week, but the final count showed otherwise. Blockbuster was scheduled to pay $42.4 million on Thursday, but at the final hour the company said it entered into an agreement with its senior secured bondholders, providing it with more time and flexibility to find recapitalization opportunities. "The company determined that entering into the Forebearance Agreement and not making payments at this time are in the best long-term interests of the company and its stakeholders," CEO Jim Keyes said in a statement. Blockbuster now has until Aug. 13 to make the payment. Under the agreement, Blockbuster must also hire a restructuring officer, and provide weekly executive summaries, including cash-flow forecasts, each Thursday. Keyes also reaffirmed his commitment to head Blockbuster. The board approved the extension of his contract, which was set to expire the week.
Several ratings agencies cut Blockbuster's rating. Standard & Poor's Rating Services cut the company to "SD" from "CC" and lowered ratings on the company's $675 million 11.75 percent senior secured notes due Oct. 1, 2014, to "D" from "CC." S&P's recovery rating on Blockbuster's senior secured debt was unchanged at "3," which means the agency expects a recovery of between 50% and 70% for note holders. Moody's Investor Services lowered Blockbuster's probability of default rating, while Fitch Ratings said it expects to lower its rating on the company unless Blockbuster meets its debt obligations. While it might appear that Blockbuster has little chance of survival, Wedbush analyst Michael Pachter said the company is recovering slightly. The liquidation of Move Gallery and its 28-day lead for stocking some new releases could help its cash position. Likewise, while the liquidation of Movie Gallery began in May, it won't really have a positive impact on Blockbuster for a few month, Pachter said. In fact, Movie Gallery's closeout sales could have actually detered Blockbuster's business this spring. This six-week forebearance could give Blockbuster the opportunity to see a cash infusion from Movie Gallery's demise. "Creditors have an incentive to wait and see what happens," Pachter said. "If you force bankruptcy what do they get other than a liquidation and possible sale of Blockbuster's name? It's better for them to keep Blockbuster alive then shut them down." -- Reported by Jeanine Poggi in New York. Follow TheStreet.com on Twitter and become a fan on Facebook.