Judge Grants Gallery Chapter 11 Extension25 Jan, 2008 By: Erik Gruenwedel
Movie Gallery's path toward exiting Chapter 11 protection received a boost when a judge of the U.S. Bankruptcy Court in Virginia granted the video rental chain a four-month extension to June 13 to formally file a plan of reorganization.
In addition, Gallery's major creditors and bondholders formally approved the No. 2 DVD rental company's financial reorganization plan.
The current filing deadline was Feb. 13, after which creditors could introduce competing reorganization plans.
The Dothan, Ala.-based chain — in previous filings — had said that without further protection, there could be “unwarranted interference from a dissident party attempting to derail the consensual restructuring process that has taken place.”
Former owner of Hollywood Video Mark Wattles has been mentioned as a potential third-party investor in an alternate reorganization plan but said in a Dec. filing that he would not enter a rival plan.
Wattles, who sold Hollywood Video to Gallery in 2005, still holds license rights to 20 Hollywood Video stores, which Gallery is attempting to rescind.
The video service said it would ask the court to confirm the new fiscal plan and expects to exit from Chapter 11 protection in the second quarter.
Judge Douglas Tice Jr. is slated to rule on the plan of reorganization Jan. 29.
As previously stated, the new financial plan includes conversion of $325 million 11% senior notes and other general unsecured claims into equity of the new company.
Gallery's first and second liens would remain in place with the exception that Sopris Capital Advisors would provide 11% senior note holders an additional $50 million in equity.
Existing shares of common stock will be nullified.
"We appreciate the cooperation of our major constituents and believe that their strong support will facilitate our successful restructuring," said Joe Malugen, chairman, president and CEO of Gallery. "We are making significant progress in our efforts to reposition the Company for improved performance and we look forward to creating value for all of its stakeholders upon emergence."