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Is BBI the next SIRI?
- Thread starter PolymathMind
- Start date
Quote from buffett1973:
DeltaSpread,
I'm new to this site and came upon this thread about Blockbuster. I was someone who took advantage of the Sirius situation and am now looking for another distress play. I've been researching BB for the past few months and even attended the recent annual meeting in Dallas (which was a joke). I like your posts here and its obvious you know a lot about this company. I recently began buying up the 2012 bonds at about 10 and I'm curious to know what your stance on the bonds are now? Like yourself I am optimistic on the future direction of the company and the business model. However, we first need to get through this cash problem. I like the 2012 bonds risk/reward situation. Also, do you have a contact for the 2012 committee negotiating with the company? Thanks.
OPTIMISTIC, what is there to optimistic about with this company, there is just way too much competition. They are late to kiosk game as well and even those in a 2-3 years will be gone, by the time blockbuster is done setting up thousands of kiosks across the US they will be shutting them down, the kiosk dvd rental business is literally 2-3 years away from going bye bye as well. No one needs a physical copy of a movie anymore, its going totally digital and blockbuster thinking that the next move to supply movies from kiosks is just the wrong idea right now. All you need is a simple set top box or a computer near by and you can stream thousands and thousands of movies right to your living room 62" plasma.
Quote from buffett1973:
DeltaSpread,
I'm new to this site and came upon this thread about Blockbuster. I was someone who took advantage of the Sirius situation and am now looking for another distress play. I've been researching BB for the past few months and even attended the recent annual meeting in Dallas (which was a joke). I like your posts here and its obvious you know a lot about this company. I recently began buying up the 2012 bonds at about 10 and I'm curious to know what your stance on the bonds are now? Like yourself I am optimistic on the future direction of the company and the business model. However, we first need to get through this cash problem. I like the 2012 bonds risk/reward situation. Also, do you have a contact for the 2012 committee negotiating with the company? Thanks.
Without trying to make predictions about the future, as not every consumer in this country has or will have 63" plasma screens anytime soon, Blockbuster's biggest issue right now is their own lack of action. By not jumping on the liability side of their balance sheet when they had the chance with market cap equity of $200M and they knew that Q4 09 revenues plunged is really coming back to hurt right now.
Not sure if the NYSE delisting catastrophe will scare off any prospective strategic investor at this point either. Bottom line is, they are dumping nearly $200M a year into merely servicing their debt. And a good chunk of this is just in interest alone. Never mind taking out the actual debt float of principle.
In the mean time, they had at one point in time left underperforming stores open for too long as well which caused SSS to suffer. All this eats into the bottom line. And even more so now that they finally have been closing these underperforming stores, breaking leases, etc. costs big money and continues to erode cash flow.
But to say that the retail side of their business is totally dead would be not accurate. Blockbuster gets $3.2B in annual revs from their stores. Movie Gallery that just closed down was getting $1.5B in annual revs. Obviously people are still going to the stores and renting. It has some value.
Blockbuster's task is two fold. #1 To only keep open the stores that are generating 80% of their multi-billion revenue. #2 Get into other areas of opportunity and growth such as Video ON demand, Cell Phones, and Kiosks which they are doing. And by the way, the Kiosks cost Blockbuster NOTHING. NCR is floating the bill.
But you can debate the future of the movies business all you want like some folks have on this thread, which I have no interest in doing. The whole point of this trade specifically was related to capital structure. Normally debt is serviced in any kind of scenario. Even in bankruptcy like we saw with CIT Group. Then there is Sirius; but actually as it turns out, is a false and unrelated hope as it pertains to blockbuster. Since the 2012 debt notes are subordinate which was not the case with Sirius. The 2014's could really play hardball and squeeze out the 2012's for a 97% loss. But in doing so, would take on nearly a 30% loss on their own principle. Hence the reason why they know its in everyone's best interest to keep blockbuster running.
The reality is very simple. If you go by the trend of Keyes and Casey; they have done nothing really in terms of dealing with this debt issue the last 7 months now. So if this goes to court, the 2012 bonds will get 3-5 cents on the dollar. IF they can come to a deal, where 2012's take on new notes with cash infusion or if a different entity all together dumps in new money, the 2012 notes could see $25+ range again.
At this point and as I have recently gone on the record updating, I am not that hopeful regarding this situation as I once was. The way that whole NYSE delisting went down was just utterly ridiculous. They had a plan approved by NYSE and were going to stay listed until Sep 2011. Some of it was not their fault, like the expert company they hired in voting logistics had no clue apparently that now broker non-votes are now counted as NO votes. But they also should have emphasized the importance of how crucial it was to get the R/S & Conversion motions passed instead of worrying about Meyers. Either way though, this will be the last ever distressed debt trade I make.
Quote from PolymathMind:
bbi is now bloka in pinksheets!
I think now in retrospect, if you could rename this thread, it should be is BBI the next BGP? There is a great example of a true brick and mortar retail business model trying to stay afloat amidst online competitors like Amazon, etc. BGP also had debt issues. But see what happens when you have superior management that actually executes. Check out the ride those common stock holders have had. BGP now trading at near 2.00 range. In earlier 2009, it spent a large amount of time in the pennies range.
Thanks for responding to my post. I understand your frustration. I've been in that position before (and am now if you take account of my 2012 bonds). However, I feel pretty good about the situation. I don't think it's to the benefit of any stakeholders (including suppliers) for BB to go bankrupt. Most of the negative news out of the company is scare tactics and negotiation. I think Q2 financials will be better than expected and will show that the company had hit bottom in Q1. I think current bondholders are feeling better about the direction of the company and will finally agree to share in the upside. I am hoping bonds come down closer to 5 which then I will buy more. Also, the 2012s now trading without interest, so you can save there too.
Do you have a contact for the 2012 committee dealing with the company or know how I can get this information?
Thanks.
Do you have a contact for the 2012 committee dealing with the company or know how I can get this information?
Thanks.
Quote from buffett1973:
Thanks for responding to my post. I understand your frustration. I've been in that position before (and am now if you take account of my 2012 bonds). However, I feel pretty good about the situation. I don't think it's to the benefit of any stakeholders (including suppliers) for BB to go bankrupt. Most of the negative news out of the company is scare tactics and negotiation. I think Q2 financials will be better than expected and will show that the company had hit bottom in Q1. I think current bondholders are feeling better about the direction of the company and will finally agree to share in the upside. I am hoping bonds come down closer to 5 which then I will buy more. Also, the 2012s now trading without interest, so you can save there too.
Do you have a contact for the 2012 committee dealing with the company or know how I can get this information?
Thanks.
No contact information. However from doing analysis of trading flow. I can tell you that IMHO a little more than $200M of the whole float was accumulated between January and March of this past year. Cost basis is somewhere in the neighborhood of $25.00.
I once shared your more optimistic view. Maybe now I am just too close to the position. I surely hope that the negative news is in fact part of a strategy ploy as opposed to merely reflecting the incompetence of Keyes and the inability to get this done.
If Q2 numbers are OK and SSS are up, then your hypothesis does make sense. Its better to get this out of the way now, before everyone sees the numbers.
However the forbearance agreement has really put an expiration date on all this. Come 2nd week of August its all or nothing. Even with a good Q2, they are still crunched for cash flow.
Lets say the company does turn around and Q4 09/ Q1 10 turns out to be bottom of revenues decline, the reality is in one shape of form or another, the 2012's will not participate, other than current market price lifting, but not much going forward. Because either we will not last or we will be taken out with most likely some kind equity shares or be diluted as a result of a new strategic cash investor.
I just hope the 2012 majority holders who are negotiating are not pig headed thinking they want par for their bonds. They already asked for 95% equity of the company and talks broke down at that point. Since then the market cap has lost more than half more of its equity. With a cost basis in their range, of only 25 cents on the dollar, they should just take whatever they can get to make a few bucks and be done with it. The 2014's are holding all the cards here.
Quote from S2007S:
When are they closing down the rest of their 4000 retail stores in the US, there is no need for these to remain open for the remainder of 2010 since no one actually goes into a stores anymore to rent dvds.
This company is going BK!!!
Revenues of $3.2B on Blockbuster stores alone. A few folks are still going to stores. Their problem is that historically something like 30% of their stores does nearly 70% of these revenues. So their true downfall has been one of cost structure, inefficiency, and having to service way too much debt; $200M annually actually. All this kills their cash flow.
But this is completely irrelevant and moot for my specific interest in this is only one of capital structure and debt which comes to a conclusion in approximately 2-3 weeks. So I am not looking for any kind of debate with you. Just merely to point something out.
FYI: The new DROID X launches in 48 hours. Sold out on Pre-Sell orders. This device is next generation. Comes with 8MP camera, 4.3" display, the ability to capture 720P video quality, and most importantly has an HDMI port. You can plug the phone into anything and stream media. And guess whats their 2nd biggest app right on the desktop?? You guessed it - a Blockbuster app. Should be interested to see, since no other movie content providers are in this space.
The market may be underestimating the 2012 bondholders. Chances are, the majority 2012 bondholders are experienced professionals, especially if your theory about a 200 million position at 25 is correct. Not many professionals would take such a gamble if the odds weren't at least in their favor. I actually see the push back they have given the company in negotiations as a positive. Is it possible we are overlooking the 2012 bondholders negotiating power? What if they know the company simply cannot or does not want to go bankrupt. This may be what the stalemate is all about. The company should be focused solely on cash survival, not focused on destroying the 2012 bondholders. I can understand trying to negotiate with the 2012 bondholders first (taking them out is probably the path of least resistance), but if it doesn't work out then they have to move on. There are other options. The company also has to be concerned with legal ramifications. Bankruptcy is not as simple as going to court and never having to pay your debts again. There will be blood (lawsuits). Blockbuster must consider every option before going bankrupt to cover themselves legally. We got to believe! LOL!
Quote from DeltaSpread:
FYI: The new DROID X launches in 48 hours. Sold out on Pre-Sell orders. This device is next generation. Comes with 8MP camera, 4.3" display, the ability to capture 720P video quality, and most importantly has an HDMI port. You can plug the phone into anything and stream media. And guess whats their 2nd biggest app right on the desktop?? You guessed it - a Blockbuster app. Should be interested to see, since no other movie content providers are in this space.
I really need to know why anyone would waste their time watching a movie on a 4.3" screen, what has this world come to, I mean is it really that necessary or important to watch a movie on a small cell phone, are people that needy for these kind of things. It really baffles the fuck out of me why someone would watch a movie on their phone, but hey that's just my opinion.