Most companies are close to death when they receive a "going concern" letter from their accountants. The missive means that there is a great deal of risk that the firm will not be in business in a year. Blockbuster (BBI) recently got its letter.
In its 10-K, the company said that "While we believe that . . . we will be in a position to close on the amended credit facility on or about May 11, 2009, there can be no assurance regarding these matters." Blockbuster is very close to restructuring most of its pressing debt.In Blockbuster's case the "going concern" letter is probably a formality because creditors have every reason to take less than the current terms of their debt rather than throw the company into bankruptcy. While Blockbuster expects to see its business slow in 2009, management still believes that its operating income will be enough to prove that the firm remains viable. The market seems to agree. Blockbuster's shares are up 120 percent over the last month and now trade at 88 cents.
Douglas A. McIntyre is an editor at 24/7 Wall St.