Movie Gallery gets longer loan extension

New deadline moved to Sept. 30

By Cindy Spielvogel -- Video Business, 8/28/2007

AUG. 28 | Movie Gallery has received another extension by lenders on its first lien credit facility.

The company now has until Sept. 30 before the lenders can act on Movie Gallery’s existing defaults, provided no further defaults occur.

Previously, Movie Gallery had been given until Aug. 27 to come up with a remedy for the financial crisis that began when it failed to meet loan requirements at the end of the second quarter, prompting fears of a possible bankruptcy.

The new extension was viewed by investors as a largely encouraging sign that the company is working on a plan that will be acceptable to lenders. The company’s stock rose from 30¢ to 45¢ in morning trading.

The agreement was made with lenders including Goldman Sachs Credit Partners and Wachovia Bank. Movie Gallery said it still needs to make an agreement with other lenders.

The new agreement modifies some terms of the loan and puts additional requirements on Movie Gallery, including providing a store closing timetable by Sept. 6.

In announcing the extension, chairman and CEO Joe Malugen said the longer forbearance agreement “allows us time to continue to develop our long-term restructuring plan while we accelerate our current store rationalization process and take other steps to conserve cash and improve profitability.”

The company is expected to close a sizeable number of its stores. Currently, it has about 4,550 stores under the Movie Gallery, Hollywood Video and Game Crazy brands in the U.S. and Canada.