Blockbuster's Fate: Will It Be Forced to Liquidate?

NEW YORK ( TheStreet) -- A decision as to whether Blockbuster ( BLOAQ.PK) will be given another chance to regain its dominance or be forced to liquidate will come in court today.

The hearing, which was originally slated to begin at 10 a.m. in Manhattan, has been postponed until 1 p.m., as parties involved in the case requested more time to discuss the case outside the courtroom.

The hearing was scheduled to discuss the "stalking horse" bid of $290 million Blockbuster received in February from Cobalt Video, a limited liability company formed by funds managed by Monarch Alternative Capital, Owl Creek Asset Management, Stonehill Capital Management and Värde Partners.

The Cobalt Video group holds more than half of Blockbuster's $630 million debt in 11.75% senior secured notes. It has not commented on whether or not it would continue to operate the business.

But last week a bankruptcy judge opposed the bid, calling it too "aggressive."

>>Click here to take our Blockbuster poll

"If anything is going to fly, this garbage truck better sprout wings," Judge Burton Lifland said in Manhattan court.

In total, 45 creditors, includingf Walt Disney ( DIS), Sony ( SNE), Yahoo ( YHOO) and Warner Bros., objected to the deal, saying it allows senior lenders to have sole right to convert the case to a Chapter 7 liquidation, repays their debt without requiring them to repay similar priority creditors, and gives them rights to lawsuit proceeds.

>>Blockbuster Timeline: From Opening to Closing Credits

Billionaire Carl Icahn, who has been noticeably absent from these discussions, reappeared yesterday. Icahn, who owns the company's senior debt, said in a court filing that he is not part of the consortium that made the "stalking horse" offer and should have the right to bid on Blockbuster himself.

This comes after one junior creditor said Icahn shouldn't be allowed to bid in the auction.

Blockbuster notified 850 employees this week that they could be laid off. The company filed a conditional warning in February, which was made public on Monday, with the Texas Workforce Commission saying mass job cuts could occur on or after April 20.

The company said it has 238 people working at the company's headquarters in downtown Dallas and 627 at its McKinney distribution center.

Blockbuster filed for Chapter 11 bankruptcy at the end of September, at the time saying it would continue to operate stores and pay employees.

Rival Movie Gallery also filed for bankruptcy protection last year, but was later forced to liquidate.

In light of all of this, do you think Blockbuster will emerge from bankruptcy or end up being forced to liquidate? Take TheStreet's poll and see the consensus.

Will Blockbuster's bankruptcy turn into a liquidation?


--Written by Jeanine Poggi in New York.

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