By David B. Wilkerson

CHICAGO (Dow Jones) -- Blockbuster Inc. shares doubled Wednesday after the company denied a report that it is considering a bankruptcy filing.

Shares of the video-rental chain (BBI) were recently up 23 cents at 45 cents. The stock had dropped 77% after a published report said the company was looking into a possible bankruptcy-law filing.

Blockbuster has hired the law firm of Kirkland & Ellis LLP to assist it in financing efforts, according to Blockbuster spokeswoman Karen Raskopf.

The Dallas company has said it has the cash to fund debt through 2009 if necessary, but is trying to secure refinancing to make a debt payment due in August, Raskopf said.

Analysts weighed in with positive comments Wednesday. Michael Pachter of Wedbush Morgan Securities maintained his strong buy rating on the stock. "There's no need to panic," Pachter told clients. "...Blockbuster will remain in compliance with all [debt] covenants, and ... there is no risk of default until 2011 at the earliest. We do not think bankruptcy is likely until then, if at all, and believe that banks will restructure the debt at that time."

Jeffrey Logsdon of BMO Capital Markets maintained a more cautious market-perform rating on Blockbuster. "What is clear is that the market is not going to ascribe much value to BBI's equity until it has a clearer picture of BBI's financials and discussion about its strategic options and plans."

Blockbuster will report fourth-quarter results on March 19.

The business faced serious challenges even before the worldwide economic collapse, which has made consumers more cost-conscious.

DVD-rental pioneer Netflix Inc. (NFLX) has cut severely into Blockbuster's market share over the past several years with its discs-by-mail service.

Blockbuster countered with an online offering of its own, which eventually evolved into Total Access -- a program that lets online Blockbuster customers return DVDs through the mail or redeem them at a store for more rentals.

Yet despite encouraging signals, Blockbuster's pullback in marketing spending and a price increase for Total Access ended up benefiting Netflix last year. Netflix had its most successful quarter to date in the period ended Dec. 31.

On Wednesday, Scott Devitt of Stifel, Nicolaus & Co. upgraded Netflix to hold from sell, saying a possible Blockbuster restructuring could "potentially redistribute a portion of Blockbuster's $2 billion in annual domestic movie-rental revenue amongst a small list of beneficiaries, including Netflix."

To a lesser extent, Blockbuster is also pressured by Apple Inc. (AAPL), which last year began to offer a movie-download rental service via its iTunes online store. Netflix offers downloads as well.

Ad-supported online streaming of television shows at such sites as Hulu.com, Veoh.com, CBS.com (CBS) and other destinations has also diverted attention away from Blockbuster's core enterprise.

In response, Blockbuster made a controversial offer to acquire now-bankrupt retailer Circuit City (CCTYQ) last April, but withdrew the bid after completing its due diligence.

Blockbuster operates more than 7,500 stores worldwide.