Blockbuster Defaults on DIP Loan and Changes Course, Seeks Approval of Procedures to Sell All its Assets

by Randall Reese
Contact

Blockbuster, which filed for chapter 11 protection in September of last year with a pre-negotiated plan to reduce its outstanding debt and reorganize as a stand-alone company, dramatically changed course today with the filing of a motion seeking approval of procedures to sell substantially all of its assets to the highest bidder. The motion, which Blockbuster is seeking to have heard by the bankruptcy court on an expedited schedule, now acknowledges that its pre-negotiated plan of reorganization is "no longer feasible."

Blockbuster blames the failure of the plan on, among other factors, "poor holiday sales, deteriorating business operations, the inability to reach a consensus with the DIP Lenders with respect to a long-term business plan and the failure to meet certain other milestones required by the [Plan Support Agreement]." Perhaps more importantly, today's motion acknowledges that Blockbuster has defaulted on its debtor-in-possession financing facility, which has resulted in the occurrence of both a "Termination Event" and a "Roll-Up Event" under those agreements and the court's order approving the DIP facility. As a result, Blockbuster's DIP lenders have terminated Blockbuster's DIP financing, but the motion reports that they have agreed to allow Blockbuster to use their cash collateral during the sale process.

Blockbuster has selected Cobalt Video Holdco LLC as its stalking horse bidder and entered into an Asset Purchase and Sale Agreement with Cobalt today. Cobalt Video Holdco is a new entity which was formed by Monarch Alternative Capital LP, Owl Creek Asset Management LP, Stonehill Capital Management, LLC and Varde Partners, Inc. for purposes of acquiring Blockbuster's assets. Those four entities collectively hold more than half of Blockbuster's outstanding 11.75% Senior Secured Notes due 2014 and are all members of the Steering Committee of holders of those notes.

The proposed agreement provides for a purchase price of $265 million or $290 million, depending upon whether an event, referred to as the "Studio Condition," occurs (the lower price applies if the Studio Condition does occur). The Studio Condition requires that at all times from today until the closing of the sale, all of the following conditions are met:

• At least five of six specific major studios (20th Century Fox, Sony, Warner, Paramount, Universal Studios, and Disney) continue to:

o support Blockbuster's "digital business on terms materially consistent with or better than those in effect on February 14, 2011" and

o provide Blockbuster's stores and its international operations "with physical copies of movies in amounts requested by [Blockbuster], on a 'cash in advance' or better payment basis and at prices materially consistent with or better than those in effect on February 14, 2011" and

• All studios "whose payments are secured, in whole or in part, shall not have taken any court or formal administrative action or exercised self-help or other similar remedies to foreclose on the assets securing such payments under the Collateral Trust Agreement prior to the closing" of the sale.

The agreement also includes purchase price adjustments for the amounts of Blockbuster's cash and inventory at the closing of the sale, as well as a proposed decrease of up to $5 million for reimbursement of the purchaser's expenses. The agreement does not, however, provide for the payment of any break-up fee or expense reimbursement in the event that Cobalt Video Holdco is not the winning bidder.

There are several other unique aspects of the agreement which bear specific mention:

• Blockbuster is only authorized under the proposed agreement to continue accepting outstanding gift cards for 45 days from today (unless applicable state law or local regulations require a longer period). Thereafter, Blockbuster is not authorized to "honor or redeem any gift cards that are outstanding on, or issued subsequent to, the date of the purchase agreement" unless Cobalt agrees in writing.

• The proposed purchase agreement provides that, in certain circumstances, Cobalt Video would have the "right to compel a conversion of [Blockbuster's] cases to cases under chapter 7 of the Bankruptcy Code upon or, at Purchaser's option, following the closing of the" sale.

• The agreement also provides Cobalt with an option to "direct the estates' liquidation of their inventory under an agency agreement."

• Cobalt does not make any commitment under the agreement "to continue the operations of any portion of [Blockbuster's] business after consummation of the Sale Transaction and there is no requirement that [Cobalt] do so."

• The agreement requires Blockbuster to seek an extension of at least 90 days from the landlords of all its leased store locations (other than those that are already being closed) of the April 21, 2011 deadline for Blockbuster to assume or reject the lease.

More information in attached document. Court documents at www.chapter11cases.com

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Randall Reese
Contact
more
less

Restructuring Concepts LLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.