NEW YORK, July 1 (Reuters) - Chicken Soup for the Soul

Entertainment ( CSSE ), which owns movie rental company Redbox and the

streaming service Crackle, has entered bankruptcy on rocky

footing, with its lenders moving on Monday to wrest control from

the company's chief executive.

The company filed for bankruptcy protection in Wilmington,

Delaware late Friday, intending to fund its restructuring with a

$20 million bankruptcy loan from private credit firm Owlpoint

Capital. But private investment firm HPS Investment Partners,

which is owed $500 million, quickly moved to block the new loan

and wrest control of the company from CEO William Rouhana.

Chicken Soup for the Soul Entertainment ( CSSE ) has a diverse

line of businesses that includes its namesake series of

self-help books, ad-supported streaming services, pet food, and

Redbox, known for its bright red self-service DVD rental kiosks

at supermarkets and other retail centers. The company estimated

that it had $970 million in total debt and $414 million in total

assets in its bankruptcy petition.

It initially blamed HPS for its bankruptcy in court filings

over the weekend, saying that the lender had prevented Redbox

from taking on a new $40 million loan that would have allowed it

to buy the rights to new releases for its rental kiosks and

streaming platforms. Choked off by the HPS loan that CSSE used

to acquire Redbox in 2022, the company was "unable to pay for

all the movies that were offered by their providers," a

situation that "materially diminished the content available

across the debtors' distribution platforms."

HPS quickly fired back in court papers, saying that

Rouhana's "gross mismanagement and self-dealing" had driven the

company to a $636.6 million net loss in 2023. HPS has little

hope of being repaid the $500 million it is owed, and it said

that Rouhana's initial bankruptcy court filings were "not only

half-baked, but shocking in their lies," according to HPS's

court filings.

CSSE did not immediately respond to a request for comment.

HPS said Rouhana has "enriched himself" at the expense of

company lenders and employees, who have not been paid for the

past 10 days. HPS said Rouhana and entities he controls have

been paid over $27 million in management fees from CSSE since

2022.

HPS asked U.S. Bankruptcy Judge Thomas Horan at CSSE's first

bankruptcy court hearing on Monday to appoint a Chapter 11

trustee to take over the company's operations, and to re-appoint

all CSSE board directors that Rouhana fired before the

bankruptcy.

Horan said he was "highly reluctant" to make any immediate

rulings, given the depth of the lender dispute.

CSSE's attorney Michael Cooley told Horan that he would

speak with HPS and other lenders in an effort to get agreement

on initial funding that would be used to pay employees. The

company has over 1,000 employees, according to its court

filings.

(Reporting by Dietrich Knauth; Editing by Alexia Garamfalvi)