Blockbuster reaches agreement with majority of revolving credit lenders extending facility

By Jennifer Lanning Drey

Portland, Ore., March 19 - Blockbuster Inc. has reached agreements with JPMorgan Chase Bank and two of the largest lenders under its existing revolving credit facility to amend and extend the facility through Sept. 30, 2010, the company reported Thursday in conjunction with its fourth-quarter earnings.

The commitments from the lenders represent 65% of the expected total principal amount of the extended revolver, which is about $250 million, Jim Keyes, chief executive officer of Blockbuster, said during its quarterly earnings call.

Blockbuster is working toward funding the agreement in the next 60 days, he said. The company said it will be starting discussions with its other lenders and is optimistic about future conversations.

"We've been working hard to replace this revolving credit facility, and what we've found is that the high cost of funds in today's credit markets has indeed created a challenge," Keyes said.

"We're confident, however, that the company has adequate liquidity within the existing facility to allow us the time necessary to explore every possible source of existing and new funding to achieve the lowest possible cost of capital."

Blockbuster management declined to provide details on the pricing of the agreement but called it "expensive."

During the question-and-answer session of the call, Blockbuster chief financial officer Tom Casey said the company hopes to restructure its balance sheet when more practical costs of capital return to the markets.

In the meantime, the higher cost facility will motivate the company to delever over the next 12 to 18 months, he said.

Blockbuster is pursuing licensing and disposition of assets outside North America, which it believes will allow it to reduce debt until more normalized pricing on capital returns to the markets, he said.

Keyes said Blockbuster's financial statements and auditors' report are likely to include reference to going-concern risks until the financing is complete and liquidity is assured.

Cash position

Blockbuster ended 2008 with cash and cash equivalents of $154.9 million. Cash provided by operating activities during the quarter increased by $6.9 million to $152.1 million. Free cash flow was $110.1 million during the period compared with free cash flow of $122.8 million in the year-ago fourth quarter.

On March 11, Blockbuster accessed its available borrowing capacity of $60 million under its revolving credit facility as a precaution against prevailing economic conditions and ongoing uncertainty in the credit markets, as well as a cushion in the even that it requires incremental capital in the coming months to meet typical or unanticipated working capital, general corporate and operating needs, Casey said.

Blockbuster plans to reduce general and administrative costs by more than $200 million in 2009 through ongoing cost reductions.

As a result, the company expects to post full-year adjusted EBITDA in the range of $305 million to $325 million.

Adjusted EBITDA was $319.1 million for full-year 2008.

Same-store sales up

Blockbuster recorded its fourth consecutive quarter of positive domestic same-store sales in the fourth quarter, which increased by 4.4%. For the full year, domestic same-store sales were up 6.4%.

Keyes attributed the success to its renewed focus on the core rental business and diversification into retail, movies and games.

Blockbuster's 2009 strategy will continue to focus on the rental business, expanding retail offerings with lower working capital and pursuing digital opportunities through collaborations and alliances that will require little capital investment, he said.

Blockbuster is a Dallas-based operator and franchiser of entertainment-related stores.

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