Online rental services, kiosks hit company hard

Investors continue to downgrade Blockbuster.

Moody’s Investors Service has lowered shares of Blockbuster two notches closer to default, worrying that the company’s weak bottom line and heavy debt repayment schedule — to lower some $1 billion in debt — increases the likelihood of a distressed exchange.

The Dallas-based company has been closing stores as more consumers switch to online rental services and kiosks. Blockbuster lost $435 million in the fourth quarter.

As a result, Moodys lowered Blockbuster from “Caa1″ to “Caa3,” two notches into junk status.

Move comes as Blockbuster is bringing back late fees. It will charge $1 for up to 10 days for late returns, capping the fees at $10 on $4.99 new releases. It is also limiting the time for those rentals to five days from the previous seven-day range. Nearly 80% of Blockbuster’s rentals are new releases, the company said.

Shares of Blockbuster are down two-thirds over last year, with the stock trading at 31 cents.

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