Some days, you wish Blockbuster (NYSE:BBI) would move its corporate headquarters from Dallas's ominously named Elm Street. It seems the nation's largest movie rental chain is taking another turn into scary territory.

Boo!
According to The Wall Street Journal, the company has hired high-powered law firm Kirkland & Ellis LLP to explore "ongoing finance and capital raising initiatives." That doesn't automatically translate to "imminent bankruptcy," but it's not a good sign. Blockbuster's stock fell a heart-stopping 77% before trading was halted yesterday.

Blockbuster seems to feel pressured by a suffocating debt load. As of Oct. 5, 2008, Blockbuster had $95.3 million of cash equivalents on the balance sheet, but $614.8 million of non-current long-term debt. The current portion? $200.2 million dollars.

It's been years since Blockbuster could rely on positive free cash flows to get it out of liquidity crunches. And this is hardly the best possible time to restructure old loans that are maturing hard and fast. If Blockbuster pays down the $135 million of outstanding balance on its revolving credit line, it still faces a $164 million repayment due on the term loans next year. Another $145 million in 2011 is followed $300 million of senior notes, which mature in 2012.

Where's the hero when you need him?
Oh, and I should mention that the revolving credit balance is new. Blockbuster didn't touch that old credit line for years, but it built up a $95 million balance by July 6 of last year -- and kept piling on. The whole thing expires this coming August. It will take some fancy footwork to get Blockbuster out of this cash crunch.

So what can Blockbuster do, other than simply give up and file for Chapter 11 protection? I suppose it could get back to profitable business. "In this era you need to shrink down to just your very best businesses," says Jonathan Henes, an attorney at Kirkland & Ellis. "You need to just focus on your core strength and make the painful, hard decisions." I couldn't agree more.

Easier said than done!
Unfortunately, Blockbuster has been expanding its core lately, rather than slimming down. Arguably the company's biggest weapon is its unique "triple threat" position. It's up against Netflix (NYSE:NFLX) in the DVD-mailing rental space; contending with Netflix, Amazon.com (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and others in the burgeoning online video stream sector; and competing with, well, hardly anyone in bricks-and-mortar rental stores.

The obvious move might be to refocus on just the store chain, where its competitive position is the strongest. But the future in its line of business is obviously digital, and Blockbuster needs to flee there -- or die.

That's why Freddy Krueger seems to loom over Elm Street today. Move one way and become obsolete in a heartbeat. Go the other way, and you're fighting for your life in shark-infested waters. Those sharks are starving for fresh business themselves, and they all have frickin' laser beams on their heads. Throw TiVo (NASDAQ:TIVO) in the water if the likes of Apple and Netflix don't scare you enough. And don't forget content producers like General Electric's (NYSE:GE) NBC Universal and News Corp's (NYSE:NWS) Fox, which are serving up their own digital video through Hulu and other aggregation sites.

Will there be a sequel?
The company's plight is a shame, really. I was starting to appreciate the new Blockbuster under the clear-eyed leadership of CEO Jim Keyes. You can blame part of Blockbuster's credit crunch on the previous management team, since they set up those loan terms to begin with. Now we'll see how Keyes handles a crisis. Maybe he should talk to President Obama; they seem to two have a good deal in common at the moment.

The stock may look temptingly cheap now, but a bankruptcy could wipe out your investment entirely. Let's wait for a progress report before jumping to any conclusions or buying anything, okay?

That update is probably coming soon. Blockbuster should report earnings on March 19, and it probably wants to settle the financial situation before facing the analysts that day. It might be best to get it done quicker than that, though. Friday the 13th is coming up next week. Uh … has anyone seen Jason Voorhees lately?

Escape from Elm Street:

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Fool contributor Anders Bylund owns shares in Netflix, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like. The Motley Fool's disclosure policy won't put you to sleep.