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02 Oct 2009
New York, October 02, 2009 -- Moody's Investors Service today upgraded Blockbuster Inc.'s
long term ratings, including its Probability of Default Rating to
Caa1 from Caa3 and its Corporate Family Rating to Caa1 from Caa2.
In addition, the speculative grade liquidity rating was upgraded
to SGL-3 from SGL-4. The rating outlook is stable.
"The upgrade acknowledges that the successful closing of the $675million
senior secured notes and full repayment of its existing senior secured
credit facilities has strengthened Blockbuster's capital structure
and addressed key constraints to its liquidity," said Maggie
Taylor, Vice President and Senior Credit Officer.
The following ratings are upgraded and LGD point estimates changed:
Probability of Default Rating to Caa1 from Caa3;
Corporate Family Rating to Caa1 from Caa2;
Senior Subordinated notes rating to Caa3 (LGD 5, 83%) from
Ca (LGD 4, 61%);
Speculative grade liquidity rating to SGL-3 from SGL-4.
The following rating is affirmed and LGD point estimates changed:
Senior secured notes at B1 (to LGD 2, 24% from LGD 2,
The following ratings are withdrawn:
Senior secured credit facilities at B1 (LGD 1, 9%).
The Caa1 probability of default rating reflects Moody's expectation
that Blockbuster's earnings are likely to modestly erode over the
next twelve to twenty four months resulting in credit metrics remaining
weak, particularly EBITA to interest expense which is also impacted
by Blockbuster's increased interest expense. The rating also reflects
the ongoing challenges of all players in the video store industry to identify
ways to deal with intense competition, price deflation, and
evolving technology and distribution channels (such as video vending kiosks).
The rating is supported by Blockbuster's adequate liquidity over
the next twelve months despite the lack of a committed bank facility.
Positive ratings consideration is given to Blockbuster's well recognized
brand name and industry position as the only company that is present across
all channels of the video rental industry.
Given the expectation for a decline in earnings resulting in a lower enterprise
value, Moody's has revised its family recovery rate to the
average 50% from the previously used level of 65%.
Moody's believes that Blockbuster's expected level of earnings
will result in lenders receiving an average recovery in the event of a
default. This results in the Corporate Family Rating and Probability
of Default Rating being at the same level.
The principal methodology used in rating this issuer was Moody's Global
Retail Industry rating methodology published in December 2006 and available
on www.moodys.com in the Rating Methodologies sub-directory
under Research and Rating tab. Other methodologies and factors
that may have been considered in the process of rating these issuers can
also be found in the Rating Methodologies subdirectory on Moody's
The last rating action on Blockbuster was on September 16, 2009
when its Probability of Default Rating and Corporate Family Rating were
placed on review for possible upgrade.
Blockbuster Inc. is a leading global provider of in-home
movie and game entertainment through several channels including;
its store base, website, digital download, and vending
kiosks. Blockbuster's approximately 7,100 stores are located
throughout the United States, its territories, and 19 other
countries. Annual revenues are about $4.7 billion.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Moody's upgrades Blockbuster's PDR to Caa1
Peter H. Abdill, CFA
Corporate Finance Group
Moody's Investors Service
No Related Data.
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