Shares of Blockbuster Inc. (BBI) dropped more than 9 percent to an all-time low a day after rival Movie Gallery Inc. forecast steep declines in same-store sales and amid speculation that the No. 1 U.S. rental chain again is in danger of defaulting on its debt.

A Blockbuster spokesman said the company has "made no announcement" concerning its debt covenants. Blockbuster has twice renegotiated with its lenders since May to avoid defaulting on its $1 billion debt load.

Lehman Bros. analyst Anthony DiClemente, who has a "sell" rating on the stock, expressed concern in a note to investors that Movie Gallery's (MOVI) lowered forecast "does not bode well" for Blockbuster.

"That Movie Gallery data point that came out last night was very ominous. It implies that for the third quarter of '05, Blockbuster could be in violation of its debt covenant again," DiClemente said.

Shares of Blockbuster fell 9.5 percent, or 50 cents per share to $4.77 on the New York Stock Exchange.

Blockbuster is facing stiff competition from online DVD rental company Netflix Inc. (NFLX) and from changing entertainment consumption patterns, while it is spending heavily to offer an online service to fend off Netflix.

Movie Gallery announced Thursday afternoon that it anticipated an 8 percent to 10 percent third-quarter drop in sales at it outlets open at least a year, a key measure known as same-store sales.

The No. 2 U.S. movie rental chain said it expected fourth-quarter same-store sales to be flat to down 6 percent.

DiClemente had expected Movie Gallery's same-store sales to decline by 5 percent in their third quarter, and to grow by 2 percent in the fourth quarter.

Wedbush Morgan analyst Michael Pachter, who has a "buy" rating on Blockbuster, said even if the company defaulted on its debt covenants "there is no way the bank is going to force them into bankruptcy."

"That is the way the market is behaving," he said.

Terms on some Blockbuster debt limit the company's debt-to-earnings ratio.

Pachter had forecast that Blockbuster's same-store sales would drop by 1.4 percent in the current quarter.

Last month, Blockbuster Chief Executive John Antioco said the company would be profitable in the fourth quarter. But he said he expected the in-store rental industry to continue to weaken and possibly force retailers to close stores.

In the past year, Blockbuster and Netflix cut their subscription prices and spent heavily on attracting online subscribers, with Netflix reaching 3.2 million subscriptions and Blockbuster gaining 1 million by the end of last quarter.

Blockbuster gave up nearly $200 million in revenue from late fees and cut the price for its most popular subscription plan to $3 less than that of Netflix.

"The reality is that Blockbuster has burned through $267 million in cash through the end of the second quarter and it appears that they are still burning cash to date," DiClemente said, adding that the company may have to reinstitute late fees to meet its free cash flow targets.

Blockbuster's notes with a 9 percent coupon due in 2012 traded around 84 cents on the dollar, down about one cent on the day, a trader said.

Netflix shares were up 2.6 percent, or 60 cents, to $24.02, and Movie Gallery stock was down 7 percent, or 99 cents, to $13.04 on Nasdaq.