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Blockbuster taps law firm for aid

The chain hires Kirkland & Ellis to arrange financing. Shares fall on

March 04, 2009|Times Wire Services

Blockbuster Inc. has hired law firm Kirkland & Ellis to help rescue the struggling video store chain from a financial bind.

The Dallas company said Tuesday that it was bringing in the firm to help arrange enough financing to keep Blockbuster afloat amid a deepening recession that has already waylaid several major retailers.

Blockbuster doesn't intend to file for bankruptcy protection, spokeswoman Karen Raskopf said. Earlier reports that the 7,500-store chain had hired Kirkland & Ellis to explore a bankruptcy filing caused Blockbuster shares to plummet 74 cents to close at just 22 cents.

The company said it would elaborate on its refinancing efforts March 19 when it released its fourth-quarter results.

The company previously announced plans to fund its own operations through the end of 2009 after two of its credit lines expire in August.

Blockbuster has also hired investment bank Rothschild to advise it on restructuring, a person familiar with the situation said.

Blockbuster has faced increased competition from Netflix Inc., the largest U.S. mail-order movie service. Blockbuster has expanded its digital library of movies and made them available on mobile phones and Web-connected TVs. It plans to offer 90,000 DVD titles by mail, according to the company's website. Netflix, by comparison, has 100,000 DVD titles.

Kirkland has a specialty in restructuring and bankruptcy, and has represented chemical companies Tronox Inc., Wellman Inc. and Solutia Inc. in bankruptcy filings.

"Blockbuster has been challenged liquidity-wise for a while now," Wedbush Morgan Securities analyst Edward Woo said. "They acquired a whole bunch of debt when they had the spinoff away from Viacom."

In May, Blockbuster had made a preliminary offer to buy Circuit City Stores Inc., backed by Carl Icahn. Blockbuster backed out a few months later.

The company increased its borrowing capacity in October under a deal with former parent Viacom Inc., according to its quarterly filing Nov. 14 with the Securities and Exchange Commission.

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