Movie Gallery back in bankruptcy, plans to close 760 stores initially

By Caroline Salls

Pittsburgh, Feb. 3 - Movie Gallery, Inc. made its second Chapter 11 bankruptcy filing in less than three years Tuesday in the U.S. Bankruptcy Court for the Eastern District of Virginia.

According to a company news release, the restructuring will include the immediate liquidation and closure of about 760 Movie Gallery, Hollywood Video and Game Crazy stores in the United States.

After these initial store closings, the company will operate 1,906 stores in the United States, including 1,111 Movie Gallery, 545 Hollywood Video and 250 Game Crazy locations.

The company said it expects to close additional stores during the Chapter 11 process.

In the Chapter 11 filing, the company cited the economic and competitive realities facing its business.

Over the past two years, Movie Gallery said it took a number of steps to respond to its business challenges and position the company for future success, including closing several hundred underperforming stores across the country, but these actions were not enough.

Movie Gallery said its goal is to emerge from the restructuring process with a new and sustainable business model centered on a smaller base of profitable stores.

The company has requested court approval to hold store closing sales at the targeted locations, and it has hired Gordon Brothers Retail Partners, LLC to help with the sales.

In connection with the bankruptcy filing, Movie Gallery has requested court approval to use the cash collateral of its pre-bankruptcy secured lenders to fund its operations while in bankruptcy.

Debt details

According to court documents, Movie Gallery has $10 million to $50 million in assets and $500 million to $1 billion of debt.

The company's largest unsecured creditors include:

• Warner Home Video of Burbank, Calif., with a $9.54 million trade payable claim;

• Sony Pictures Home Entertainment of Culver City, Calif., with a $9.34 million trade payable claim;

• Twentieth Century Fox Home Entertainment of Los Angeles, with an $8.18 million trade payable claim;

• Universal Studios Home Entertainment of Universal City, Calif., with a $7.67 million trade payable claim;

• Paramount Home Video of Hollywood, Calif., with a $6.87 million trade payable claim;

• VPD, Inc. of Folsom, Calif., with a $2.86 million trade payable claim;

• Valassis Direct Mail Inc. of Livona, Mich., with a $2.26 million trade payable claim;

• Electronic Arts of Redwood City, Calif., with a $1.84 million trade payable claim;

• Microsoft Corp. of Redmond, Wash., with a $1.75 million trade payable claim; and

• Ostler Group of Sandy, Utah, with a $1.09 million trade payable claim.

As previously reported, Movie Gallery also filed for bankruptcy in October 2007. The company emerged from that case in May 2008.

Movie Gallery is a Wilsonville, Ore.-based video and game rental company. Its Chapter 11 case number is 10-30696.

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