NEW YORK - For several months, the company has been operating only with the forbearance of its lenders.
Blockbuster, the DVD rental chain with 5800 stores in 17 countries around the world, is expected to file for bankruptcy, marking another convulsion from the shift to online entertainment.
The company has US$900 million ($1228 million) of debt that it cannot pay because its revenues are tumbling and it is sliding further into the red, and a financial restructuring deal will wipe out all but the most senior bondholders.
Blockbuster's fortunes have been sinking since the launch of rival services which allow users to order DVDs online and receive them through the post.
The advent of online streaming of films and video-on-demand cable services, plus movie downloads from stores such as iTunes, has dealt a further blow.
Although Blockbuster has teamed up with Hollywood studios to launch services of its own in all these areas, it has been hobbled by the costs of its extensive store network.
In the first six months of this year, revenues declined 16 per cent, sending losses ballooning from US$9.2 million in the same period last year to US$134 million.
For several months, the company has been operating only with the forbearance of its lenders.
Management and its advisers are believed to have agreed the shape of a restructuring deal, which will put the US company into Chapter 11 bankruptcy protection in the hope of continuing to operate a slimmed down operation.
Blockbuster shut more than 500 stores in the first half of this year, with a target of almost 1000 closures. Senior bondholders will convert some of their holdings into equity. Lower-ranking bondholders will in effect be wiped out.
As speculation mounted that the filing was imminent, the company said last night: "We continue to explore all of our options and are making good progress in our recapitalisation process. Our discussions with the studios and bondholders continue to be productive, and we have every reason to believe we will come out of the recapitalisation process financially stronger."