Sept. 23, 2010— -- Troubled video-rental chain Blockbuster Inc. is filing for bankruptcy protection but will keep its stores and kiosks open as it reorganizes.
In a submission to the U.S. Bankruptcy Court in the Southern District of New York on Thursday, the company said it plans to recapitalize its balance sheet and transform its business model.
Once a home entertainment powerhouse, Blockbuster has been losing market share and money for years as more Americans rent DVDs from subscription service Netflix Inc. and popularity surged for streaming video over the Internet.
The company, which had warned investors it might file for bankruptcy protection, was delisted in early July by the New York Stock Exchange.
The bankruptcy filing is part of a pre-arranged deal with bondholders that would slash the company's debt by about $900 million.
More than 80 percent of the company's senior noteholders have agreed to support the plan and provide $125 million in "debtor-in-possession" financing to help support Blockbuster's operations while it is under bankruptcy, the company said in a statement.
"Currently, all 3,000 of the company's stores in the United States will remain open," it said.
Blockbuster said it will no longer provide funding to support its operations in Argentina, which have experienced continued shortfalls in operating cash flow.
In a separate statement, Blockbuster Canada said it was not included in the Chapter 11 filing and all its operations were conducting business as usual.
Earlier this year, the Dallas-based retailer said it would close nearly 10 percent of its stores. Customers have moved away from renting films through its outlets in favor of online services such as Netflix.
Blockbuster rival Movie Gallery Inc. filed for bankruptcy in February. Though the operator of the Hollywood Video rental chain initially planned to reorganize, by May it had decided to liquidate entirely.
The case is In re: 10-14997, U.S. Bankruptcy Court, Southern District of New York.
With reporting by Reuters and The Associated Press.