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Movie Gallery Debt = $1.2 Billion

2 Aug, 2006 By: Jessica Wolf

No. 2 video rental chain Movie Gallery Inc. has been named one of 12 possible bond default companies by the Distressed Debt Securities Newsletter.Movie Gallery was carrying close to $1.2 billion in debt as of Jan. 1, 2006, according to the company's annual report filed March 24 with the Securities and Exchange Commission.

Earlier that month, the company got some relief from its senior credit facility, which came with tight restrictions on Gallery's ability to incur debt, pay dividends, redeem capital stock, make capital expenditures and make acquisitions.

The company can spend only $35 million in capital expenditures this year, and, subject to certain exceptions, $17.5 million in coming years, according to Movie Gallery's first-quarter 10-K.

The company is expected to announce second-quarter results in the next two weeks.

The first quarter of 2006 was better than expected for Gallery, which has been beleaguered by its larger corporate structure and the droop of the overall rental market since the company's September 2005 acquisition of Hollywood Entertainment Corp.

Movie Gallery earnings were $40.3 million for the first quarter, up from $18.4 million in the prior-year period. Revenue hit $694.4 million, up nearly three times the prior year's $233.8 million. However, overall same-store revenue fell 6.5%, a drop executives attributed to a lack of strong $100 million titles in the video pipeline. That lack of good titles won't pick up until September, Gallery execs said at the time.

Over the last year, Movie Gallery has whittled staff, shuttered redundant stores and plans to reduce overhead in remaining locations by subleasing space to outside retailers.

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