BLOKB Shares Getting Tight Before the October 19th Court Day

Blockbuster Seeks To Limit Trading To Preserve Tax Benefits
Friday 09/24/2010 2:18 PM ET - Dow Jones News

Related Companies
Symbol Last %Chg
BLOKA 0.0502 16.74%
BLOKB 0.025 19.05%

As of 4:00 PM ET 9/24/10

By Joseph Checkler
Of DOW JONES DAILY BANKRUPTCY REVIEW

NEW YORK (Dow Jones)--Blockbuster Inc. (BLOKA, BLOKB) is trying to limit trading of its stock during its bankruptcy to preserve valuable tax breaks.
In a filing with the U.S. Bankruptcy Court in Manhattan, Blockbuster asked a judge to impose a 20-day waiting period prior to any sale or purchase made by investors owning or seeking to own 4.75% or more of the company's preferred or common shares.
Blockbuster wants the right to object to such transactions so that it can preserve tax breaks stemming from an estimated $580 million in net operating losses.
Judge Burton Lifland of U.S. Bankruptcy Court in Manhattan approved the request on an interim basis, which will make the large investors follow those rules before a final hearing on the matter set for Oct. 19.
Significant ownership changes in Blockbuster's stock could hinder the company's ability to apply those losses against taxes in future years. Blockbuster also wants all holders of 4.75% or more of those classes to identify themselves, and it wants to stop any holder of the company's Series A convertible shares from converting them into Series A common stock.
The video retailer, which filed for Chapter 11 bankruptcy protection on Thursday with plans to slash its debt to around $100 million from nearly $1 billion, asked Lifland to accept its request on an interim basis so share owners couldn't sell out their stakes awaiting a ruling.
"Such trading would put the Debtors' Tax Attributes in jeopardy and would thereby be counterproductive to the Debtors' objectives in seeking the relief requested herein," Blockbuster said in the filing.
"The Tax Attributes are valuable assets of the Debtors' estates," Blockbuster said in its filing, because the federal tax code allows a corporation to carry over losses and tax credits to offset future income, thus reducing its tax burden.
Blockbuster's shares recently traded at less than 5 cents a share on the over-the-counter Pink Sheets.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)

-By Joseph Checkler, Dow Jones Daily Bankruptcy Review; 212-416-2152; joseph.checkler@dowjones.com

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