Movie Gallery hires financial advisor

PHYSICAL: Rental chain said to be late on rent, financial statements

By Danny King -- Video Business, 12/15/2009

DEC. 15 | PHYSICAL: Movie Gallery has hired Moelis & Co. as a financial advisor to work with its lenders after falling behind on rent for many of its stores and not filing financial statements due to its lenders on time.

The No. 2 movie-rental store chain behind Blockbuster confirmed a Financial Times report this week saying that it hired the investment bank to work with its lenders. Movie Gallery said it wasn’t behind on loan payments, as reported yesterday.

“Maintaining good relationships with the company’s lenders is very important, so Moelis’ advice will be of great value as we continue to chart a course for our business in this challenging economic environment,” Movie Gallery said in a statement today. The company didn’t comment on its rent status.

Movie Gallery is using a 30-day grace period to renegotiate with lenders and landlords after not filing financial reports required by the lenders, the Financial Times reported, citing two people familiar with the process that it didn’t identify. The company, which emerged from bankruptcy in May 2008, has about $840 million in debt, according to the FT.

Movie Gallery said in October that it would shut as many as 450 stores, or about 13% of its total, by the end of the year, citing slowing demand for packaged media such as DVDs. The company has faced growing competition from U.S. movie-rental kiosk leader Redbox and by-mail leader Netflix since emerging from bankruptcy in 2008.

The company in October set up a “real estate hotline” for its landlords that promised a 48-hour response to their inquiry, implying the chain has had trouble keeping up with its rent payments. One landlord at the time told Video Business that the chain was 20 days late paying rent to him.