In a new report on Blockbuster Inc. (BBI), Standard & Poor’s elaborates on its March 18 downgrading of the company’s credit rating to CC/Negative. S&P sees Blockbuster’s worldwide brand recognition as the company’s only strength.
Selected excerpts:
The ratings on Dallas-based Blockbuster Inc. reflects our view that performance will remain very challenged and our concern that Blockbuster will not be able to transform its business model over the near term, as we had expected, given the competitive pressures in the rapidly evolving domestic media entertainment industry.
In addition, we expect credit protection measures will remain very weak. Although the company has cash balances, if the movie studios were to tighten credit terms or require upfront cash payments, we estimate that Blockbuster’s liquidity would be severely constrained in the second half of fiscal 2010.
The negative rating outlook reflects our view that the company either could file for bankruptcy protection or do some form of distressed debt exchange, which would result in our lowering the ratings to ‘D’.
We expect free operating cash flow to decline as a result of ongoing weaker operations and while we believe the company will take actions such as closing of cash flow negative stores and reduce expenses to somewhat mitigate the decline in cash flow, it will likely be insufficient to turn around the current negative operating trends.
-from Standard & Poor’s March 25 full credit rating report on Blockbuster.
For latest analyst comments on Blockbuster seeAlacra Pulse.
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