L.A. Times: Blockbuster CEO Keyes Briefed Studios on Pending Prepackaged Bankruptcy

Fifteen days ago, Blockbuster spokesperson Patty Sullivan told Unfair Park: The company's delay in releasing its what turned out to be dismal second-quarter stats had absolutely nothing to do with a pending prepackaged bankruptcy. "There will be no news announcing that," she said. Not until late yesterday, anyway, because that's when The Los Angeles Times broke the news that Chapter 11 and the closing of hundreds of stores is but weeks away -- mid-September, at the latest.

The Times says that CEO Jim Keyes traveled from Renaissance Tower HQ to Hollywood just last week to meet with execs from 20th Century Fox, Paramount, Sony, Universal, Walt Disney Studios and Warner Bros. Writes Ben Fritz, "He was joined by a team of restructuring consultants hired to help turn around the struggling company, along with its senior debt holders who would likely end up owning a substantial portion of Blockbuster following bankruptcy. Former Sony Pictures home entertainment president Ben Feingold, who is serving as an advisor to the debt holders, was present as well."

News of the pending bankruptcy is not sitting well with at least one vocal shareholder, who tells Unfair Park this morning: Look out, but this could be a legal matter, baby.

Fritz reports that they laid out what they hope is a viable plan -- using bankruptcy to rework that crushing close-to-$1-bil in debt while also shuttering between 500 and 800 additional stores and really trying to grow that kiosk and digital business. Writes Fritz: The studios want Blockbuster to stick around -- that'd be a lot of lost revenue -- but they have to decide if it's worth giving up those 28 days to Redbox and Netflix.

The studios would likely be protected from any significant losses on payments Blockbuster might owe them at the time it files for bankruptcy under the proposed plan. But they would lose revenue from any stores shut down.

The parties most impacted would be Blockbuster's junior debt holders and the landlords of leases that would be canceled under the proposed bankruptcy. It remains to be seen whether they would attempt to challenge a plan that left them with a fraction of what they are owed.

Late yesterday I sent Sullivan an e-mail asking her for Official Comment on The Times story; I've yet to hear back, but a spokesman told The Times, look, it's just recapitalizing in the hopes of moving forward "financially stronger and more competitively positioned for the future." Though the company always denies it when stories like this come up, L.A.-based analyst Stan Manoukian said in early June, "The bankruptcy writing is on the wall." Below is a statement I just received from the Blockbuster Shareholders-leading Bronx Bomber, Niko Celentano:

I have read the LA Times story that broke last night regarding a prepack bankrupcty filing in mid September. We are angered over this news as the company has led us to believe there would be an out of court settlement. The company has stated many times in the past months that "we have more options available to us now then we did last year", that there were "strategic investors and foreign asset sales", and even watched Jim Keyes on a CNBC interview laugh off the notion of a BK filing when it was brought up. This position the company is in today in no one's fault but their own. Instead of being an innovator the company has continued to let others steal market share away from them, and then had to play catch up. Any prepack filing must include the common shareholders as a part of it, or their will be legal action taken.

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