Top U.S. movie rental chain Blockbuster said on Tuesday it has enlisted lawyers to help it raise capital and refinance debt, but stressed it has no plans to file for bankruptcy.

Blockbuster spokeswoman Karen Raskopf said the company has hired law firm Kirkland & Ellis LLP but denied news reports that the firm would help Blockbuster file for bankruptcy.

Shares in Blockbuster, which has been scrambling to cope with the increasing popularity of online video, plunged more than 76 percent before trading in them was suspended amid the reports.

A source familiar with the matter told Reuters on Tuesday that the struggling, debt-laden firm had hired lawyers and investment bank Rothschild to explore restructuring options -- including a potential bankruptcy filing.

We do not intend to file for bankruptcy, Raskopf told Reuters.

Instead, the law firm will assist with our ongoing financial and capital raising initiatives, she said, including restructuring a $328 million term loan and a revolving credit facility due in August.

If needed, Blockbuster can implement a plan to self-fund its debt through 2009, Raskopf said.

We look forward to discussing the progress we have made as a company and our refinancing efforts during our earnings call on March 19, she added.

Blockbuster, like other companies with debt issues, faces a difficult credit market out there, she said.

Blockbuster shares, which were halted about 90 minutes before the market closed on Tuesday, closed down 73 cents, or more than 76 percent, at 23 cents, while shares of online arch-rival Netflix jumped more than 13 percent before easing to close 5.9 percent higher at $36.36.

Blockbuster is now working with turnaround specialists at Rothschild, the source said.

As increasing numbers of customers migrate to video downloads or mailed rentals, Blockbuster is struggling to reinvent itself while also restructuring hundreds of millions of dollars in debt.

Executives had said in November that the firm would face challenges refinancing its debt.

Blockbuster has been facing some liquidity issues for a while now and this is one of the options they have. It's not a great one, said Edward Woo, Wedbush Morgan Securities.

I don't think it's going to result in a liquidation like Circuit City, but if you're doing business with them, it's not a great thing, he said.

Woo estimated that Blockbuster had spent $2.7 billion on product and inventory costs, which was mostly video games and DVDs, in 2007.

(Reporting by Emily Chasan and Gina Keating; Additional reporting by Sue Zeidler; Editing by Edwin Chan, Gary Hill)