Movie Gallery seeks approval of restructuring terms, rights offering agreement

By Caroline Salls

Pittsburgh, Oct. 26 - Movie Gallery, Inc. requested court approval of several agreements needed to implement its proposed restructuring, according to a Thursday filing with the U.S. Bankruptcy Court for the Eastern District of Virginia.

Specifically, Movie Gallery is seeking approval of a lock up, voting and consent agreement with proposed plan sponsor Sopris Capital Advisors LLC and some of Movie Gallery's second-lien lenders; the restructuring term sheet; the rights offering term sheet; and the plan term sheet.

Through the lock up agreement, holders of a majority of the company's 11% senior unsecured notes and a majority of its second-lien lenders have agreed to support and vote to accept Movie Gallery's plan of reorganization.

As previously reported, the Sopris-funded plan terms include:

• The company's $325 million of 11% senior notes and other general unsecured claims will be converted into new equity of reorganized Movie Gallery;

• Roughly $72 million of Movie Gallery's $175 million second-lien debt, held by Sopris, will be converted into new equity of reorganized Movie Gallery;

• The company's first-lien debt will remain in place on restructured terms to be agreed upon by Movie Gallery, Sopris and the first-lien lenders;

• The company's remaining second-lien debt will be amended following conversion of the second-lien debt held by Sopris to revise interest rates based on the terms of the restructured first-lien debt and to modify some payment-in-kind interest terms and conditions;

• Sopris will backstop a $50 million equity rights offering to be made available to all eligible holders of Movie Gallery's 11% senior notes; and

• Holders of the company's common equity will receive, under specific circumstances, a minority share of the equity in reorganized Movie Gallery, estimated at about 2% of the total equity interests.

Existing shares of common stock will be canceled.

According to the motion, the restructuring agreements will meet Movie Gallery's debt reduction needs by providing for the conversion of more than $400 million in existing debt into equity in the reorganized company and the investment of $50 million in new capital through the rights offering.

Movie Gallery will pay a backstop commitment fee of 2.3% of the $50 million rights offering amount and a $2 million termination fee if it chooses to proceed with an alternate transaction.

If any objections to the restructuring agreements are filed, a hearing will be held on Nov. 6.

Movie Gallery, a Dothan, Ala.-based video rental company, filed for bankruptcy on Oct. 16. Its Chapter 11 case number is 07-33849.

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