Movie Gallery Unable to Pay Back Lenders

Steve Javors
DOTHAN, Ala. — The second-largest movie and game rental company in the U.S. might have to declare bankruptcy. Movie Gallery failed to meet its second-quarter projections and thus was unable to fulfill the obligations of its debt.

Video Business reported that the company is consulting with its lenders on how to properly remedy the defaults whether by waiver, amendment or forbearance. To help get the company out of the red, Movie Gallery rehired a consultant in an expanded role to analyze strategic and restructuring alternatives.

Options for remedying its bleak financial situation include divesting assets, recapitalization, alliance with strategic partners and a sale or merger — even the dreaded “b” word is being talked about — bankruptcy. Additionally, numerous store closings are on the horizon.

Adult studio representatives contacted for this article told XBIZ that Movie Gallery potentially going out of business would be a “huge blow to sales,” because of the large number of adult DVDs the company orders.

“I think it’s in the best interest of the senior secured credit holders to take control and compel a bankruptcy,” Michael Pachter, research analyst with Wedbush Morgan securities, told Video Business. Pachter believes it’s likely that Movie Gallery would declare bankruptcy.

Movie Gallery recently added online rentals in order to challenge Netflix and Blockbuster Video in that arena, but analysts say the move came too late to rescue the company from its financial morass.

Movie Gallery was founded in 1985 and operates more than 4,700 stores in the U.S. under the Movie Gallery and Hollywood Video brands. The company carries adult movies in many of its stores.