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NEW YORK — Shares of Blockbuster Inc. surged Monday after an analyst said the video rental company's decision to issue $340 million of senior notes should put to rest investor concerns about liquidity.
Blockbuster said earlier in the day that it will offer the notes due in 2014 in a private sale to institutional buyers. The company said it plans to use the proceeds to pay down existing debt and for general corporate purposes.
The company will now have ample liquidity to reinvest in store upgrades, retain attractive international assets, build out a distribution model and explore new technology outlets, like games by mail and kiosks, Janney Montgomery Scott analyst Tony Wible said in a note to clients.
"With the debt overhang essentially removed, we believe the company can now focus on a balance of growth and cash flow generation, and debt pay downs that should transfer the company's $956 million enterprise value from debt to equity holders," Wible said, maintaining a "Buy" rating.
Wible said he also expects recent weakness in the box office, a promising movie rental slate and ongoing cost cuts to benefit Blockbuster in the near-term.
Shares of Blockbuster jumped 17 cents, or 14.2 percent, to $1.37 in afternoon trading, after trading as high as $1.49 earlier in the session. The stock has traded between 13 cents and $3.05 over the past year.
