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Drama dogs Movie Gallery
A default on debt, stiff competition take their toll on the owners of Hollywood Video.
By Mark Albright, Times Staff Writer
Published July 4, 2007
The owners of Hollywood Video are fighting to keep the curtains up after the nation's second-biggest video rental chain on Tuesday said it was in default on $750-million in short-term debt. The stock of Movie Gallery Inc., which tapped out its credit lines and is down to its last $50-million in cash, plunged to 66 cents a share from $1.23 Tuesday after the disclosure. One analyst put a target price of 30 cents on the stock, and Movie Gallery notes traded at record lows pending rating agency downgrades. Movie Gallery, which doubled in size by paying $1.1-billion for 2, 200 Hollywood Video stores two years ago, is asking Goldman Sachs and other lenders to wave debt restrictions while the company develops a survival plan. That would range from closing more stores to selling the chain. The company, based in Dothan, Ala., refinanced its debt in March but said business declined faster than expected since then. The company operates 4, 550 stores, including 21 Hollywood Video stores in the Tampa Bay area. The company also rehired Alvarez & Marsal to advise on a potential strategic restructuring of the company's operations. The firm did similar work for Movie Gallery in 2006. The Hollywood Video deal went sour almost from the start in a DVD-rental industry already challenged by customers' ability to find other uses for their time and competition from movie-on-demand and Web-based mail-order services offered by much bigger rival Blockbuster Video and Netflix Inc. Movie Gallery and Hollywood Video have steered clear of mail order and only tested movies-on-demand. Instead, they have been switching out more store space to video games. Movie Gallery stock dropped from $30 before the acquisition to $5 afterward and has struggled to rebound. In its most recent quarter ended April 1, Movie Gallery reported a 7 percent decline in revenues and a $15-million loss. Mark Albright can be reached at albright@sptimes.com or (727) 893-8252.
[Last modified July 3, 2007, 22:47:27]
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