Opposition Builds to Blockbuster’s Proposed Sale
Blockbuster’s bankruptcy takes another turn this week as creditors gear up for a hearing in their opposition to the chain’s proposed $290 million sale to Cobalt Video. Cobalt, comprised of lenders including Monarch Alternative Capital, took the lead in establishing a stalking horse bid in Blockbuster’s proposal to hold an auction. U.S. Bankruptcy Judge Burton Lifland, New York City, adjourned a hearing last week amid opposition to Cobalt’s proposal from 45 creditors including Disney Co., Universal Studios and Yahoo. A hearing on creditors’ motion is set for March 10.
Creditors argued the proposed sale gives senior lenders the sole right to convert the case to Chapter 7 liquidation and repays their debt without requiring Blockbuster to repay similar creditors. The lenders in February terminated a $125 million debtor-in-possession agreement, which would require repayment of the loan. Blockbuster hadn’t drawn on the DIP credit agreement, it said in an SEC filing. The lenders hold senior secured notes due in 2014.
The $290 million stalking horse bid from Monarch, Owl Creek Asset Management, Stonehill Capital Management and Varde Partners also isn’t fair because of those firms other involvement in the company, Disney said. Cobalt Video controls more than half of Blockbuster’s $630 million in 11.75 percent senior secured notes and hasn’t made a commitment to continue the business. Other creditors also have asked that billionaire investor Carl Icahn be excluded from the auction, since his group was represented on Blockbuster’s board when the senior secured notes were issued.
"The secured lender apparently dictated” sale terms “beneficial to itself and detrimental to the debtors’ estates and its administrative trade creditors,” Disney said in court documents. “The situation is particularly egregious given that the pre-petition lenders purported to provide a post-petition loan to pay costs for administration” to insure the continued shipment of merchandise to Blockbuster. Disney had a $9.2 million claim when Blockbuster filed for bankruptcy in September.
Blockbuster’s proposed procedures for the bankruptcy auction will “chill bidding” on maintaining the chain as a “going concern” since they require any competing bid agree that trade creditors are paid last, Disney said. Most potential strategic buyers demand trade creditors get paid first to “preserve good will” and insure a continued supply of products, Disney said.
Separately, some movie studios formed an ad hoc committee to represent their interests and hired attorney Robert Feinstein. Among the studios involved in the committee are Paramount Home Entertainment, Twentieth Century Fox Home Entertainment, Universal Studios Home Entertainment and Warner Bros. Home Entertainment, court documents said.