Blockbuster extends debt pact, but may liquidate

The video rental chain is saddled with more than $1 billion of debt. It has struggled to compete in an evolving digital marketplace against competitors like Netflix Inc, and its market share losses are accelerating at a faster rate than the company can diversify its revenue sources.

The company put investors on warning that it might end up liquidating its assets despite attempts to reorganize, according to its quarterly filing with the U.S. Securities Exchange Commission.

Blockbuster, which has previously said it might have to file for a prearranged bankruptcy under Chapter 11, disclosed that if it cannot get the debtor-in-possession financing needed to operate in bankruptcy or if it cannot implement a plan of reorganization, it may have to file for Chapter 7 and sell its assets.

The company said on Friday that its second-quarter loss had widened to $69 million, or 32 cents per share, from $37 million, or 21 cents a share, a year earlier.

Revenue fell to $788 million from $982 million.

Blockbuster, which announced its delisting from the New York Stock Exchange in July, said on Wednesday that it would not hold a conference call following the release of its earnings due to the complex nature of its recapitalization.

In July, Blockbuster entered into a forbearance agreement with about 70 percent of its noteholders, and elected not to make a $42.4 million interest payment on bonds due July 2.

Analysts have said that a pre-packaged bankruptcy may be the company's best option.

Blockbuster said it had signed the forbearance agreement on August 12 with noteholders representing about 70 percent of its senior secured notes - the same percentage as with the previous agreement. It said it was in talks with noteholders as well as strategic parties to try to restructure its balance sheet and acquire additional capital.

Shares of Blockbuster were down 20 percent at about 14 cents in morning over-the-counter trading.

(Reporting by Caroline Humer and Sinead Carew in New York, and Sue Zeidler in Los Angeles; Editing by Dave Zimmerman and Lisa Von Ahn)