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Blockbuster Inc. is considering debtor-in-possession financing in case it files for Chapter 11 bankruptcy.
updated 6/13/2010 1:30:44 PM ET 2010-06-13T17:30:44

Blockbuster Inc. is trying to line up a $150 million lifeline in case the troubled video-rental chain files for Chapter 11 bankruptcy protection, according to a published report.

The Wall Street Journal described the so-called "debtor-in-possession" financing as one of several options that Blockbuster is exploring as its losses mount amid stiff competition from video subscription service Netflix Inc. and Redbox's DVD-rental kiosks. The newspaper on Friday cited people familiar with Blockbuster's talks.

Blockbuster stated Friday that it's negotiating with lenders and "strategic investors," but declined to be more specific. "We continue to have ongoing constructive dialogue," the company said.

The most likely alternatives to bankruptcy protection would probably require Blockbuster's lenders to forgive some debt in exchange for a stake in the company. That scenario also probably would involve a cash infusion from an outside investor.

NCR Corp., which supplies Blockbuster with DVD kiosks, is among the potential investors, according to the Journal.

Blockbuster, which is based in Dallas, has already warned in regulatory filings that a bankruptcy filing is a possibility, although its management has stressed they are trying to find other ways to lighten a debt load of more than $900 million.

Blockbuster won't file for bankruptcy before its June 24 shareholder meeting, the Journal said.

Bankruptcy fears have devastated Blockbuster shares, which fell a penny to close Friday at 27 cents. Meanwhile, the growing popularity of Netflix's DVD-by-mail and Internet video stream service turned that company's stock into one the market's top performers during the past 18 months. Netflix shares gained $2.03 Friday to finish at $120.69, nearly quadrupling since the end of 2008.

Netflix's success already contributed to the downfall of video rental chain Movie Gallery, which filed for bankruptcy protection for the second time earlier this year. The company, which also owns Hollywood Video, is in the process of closing its remaining 1,050 stores.

Blockbuster also has been closing hundreds of unprofitable stores during the past two years. It still lost $65.4 million during the first three months of this year. The company ended the first quarter with $110 million in cash.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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