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Despite Earlier Reports, Blockbuster "Does Not Intend to File For Bankruptcy"

By Robert Wilonsky in Business News for People Who Don't Read Business News

Tuesday, Mar. 3 2009 @ 3:33PM

On Friday, Blockbuster spokesman Randy Hargrove told the Cape Gazette in Delaware that the Dallas-based video- and game-rental company was doing just fine, thanks, despite the shuttering of a store up there, one among hundreds in recent years. Said Hargrove, "Because of our brand name, we have the ability to compete." Just four days later, that statement's now an enormous question: Before trading was halted, Blockbuster's stock plummeted 74 cents ... to a mere 22 pennies, a loss of 77 percent. (Its highest trading price in the past year was $3.68.) The plunge followed a Bloomberg story concerning the company's hiring of outside counsel to "explore a possible bankruptcy filing."

But Karen Raskopf, a Blockbuster spokesperson, tells Unfair Park that the company "does not intend to file for bankruptcy" and that it has hired Kirkland and Ellis only "for assistance with ongoing financing and capital-raising initiatives. We've been talking about refinancing. We've also said our business generates cash, and if we needed to we could put a self-funding plan in place through 2009. We could self-fund our business. We would reduce spending and cash flow so we don't need outside assistance, but we hope that's not necessary. We're hopeful to have refinancing in place."

More after the jump.

As Friend of Unfair Park Michael O'Neill wondered in December, just after Blockbuster released its OnDemand set-top box, "Is there any chance Blockbuster sees the other side of 2009?" U.S. News & World Report wondered the same thing last month, listing it as one of "15 Companies That Might Not Survive 2009." Why?

The video-rental chain has burned cash while trying to figure out how to maximize fees without alienating customers. Its operating income has started to improve just as consumers are cutting back, even on movies. Video stores in general are under pressure as they compete with cable and Internet operators offering the same titles. A key test of Blockbuster's viability will come when two credit lines expire in August. One possible outcome, according to Valueline, is that investors take the company private and then go public again when market conditions are better.

When asked if the company would indeed go private, Raskopf says only that, "There's lots of speculation and rumors out there, and I can't comment on that. We're looking at refinancing and talking about the progress we've made with our business." The company also announced today that on March 19, it will report its fourth quarter and fiscal year 2008 financial result -- after the close of the U.S. financial markets. Blockbuster employs 60,000 people.