With the recent doubling of movie-rental giant, Blockbuster’s private note offering, CEO and Chairman Jim Keyes believes that this shows a vote of confidence by investors for the company’s long-term business model.
The new source of financing provides Blockbuster with enough funding to replace its bank debt with a flexible payment schedule for future spending to help the company grow.
Keyes suggested in an interview that it provide an immediate solution by creating an alternative capital structure to pave the way for further transformations in Blockbuster.
Of course, this would also allow for a significantly smaller repayment amount for next year. Actually, it would be about $90 million rather than $397 million.
The sale is still set for October 1. A total of $675 million in senior secured notes goes on sale. According to sources, the company prepared an offer of $340 million in the private offering on September 14.
The proceeds off the new notes shall be used to pay back those debts under its revolving credit facility and a term loan. There is also a revolving asset-backed loan facility in Canada that will be affected by this move.
Five-year senior secured notes would carry an 11.75% interest rate. This is a decrease from a previous 13% interest rate attached to past agreements.
Blockbuster has been under continual pressure for the last few years, as rival companies such as Netflix and Coinstar have entered the market with leaner expense models and lower-cost services. The company has lost a sizeable share of the rental market to mail-order rentals and online streams as well as kiosk-venders. It is the costs of Blockbuster’s traditional storefront model that has caused the pressure to build.
Yet, the improving credit market has helped the Blockbuster find ways to develop new avenues so it will continue to be a viable player in the market.
Tags: structure, blockbuster debt, Blockbuster's private note, Blockbuster Inc., Business Finance, company debt, solution, blockbuster
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