Video-rental chain Blockbuster Inc. filed for bankruptcy protection in the United States on Thursday, as the company moved to refinance and cut its debt load.

A Blockbuster store is seen in Barre, Vt., on Wednesday. The troubled video-rental chain has filed for Chapter 11 bankruptcy protection but plans to keep stores and kiosks open as it reorganizes. (Toby Talbot/Associated Press)

In a filing with U.S. Bankruptcy Court in the Southern District of New York, the company said it has struck a deal with its bondholders for a refinancing plan.

The company's Canadian operations said they are not affected by the move.

Blockbuster Canada said it operates independently of the U.S. operations and is financially stable.

"We have the assets and our own free cash flow to continue to execute our operating plan," said Barry Guest, Blockbuster Canada's vice-president and general manager.

"We're very healthy and continue to grow our market share."

Blockbuster Canada has 440 stores across the country and about 5,000 employees.

Blockbuster Inc. said its U.S. operations, including 3,000 stores, DVD vending kiosks, and mail and digital businesses, will all remain open during the reorganization.

Blockbuster has lost market share as more consumers turn to the internet for their entertainment.

Blockbuster's plan is to cut its debt from nearly $1 billion US to about $100 million or less via a debt-for-equity swap with bondholders that hold about 80.1 per cent of the company's senior notes.

"After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business model to meet the evolving preferences of our customers," said Blockbuster Inc. CEO Jim Keyes.

With files from The Canadian Press