Movie Gallery files amended reorganization plan

By Caroline Salls

Pittsburgh, Feb. 4 - Movie Gallery, Inc. filed an amended plan of reorganization and related disclosure statement Monday with the U.S. Bankruptcy Court for the Eastern District of Virginia.

Among the changes to the amended plan, letter-of-credit fees included in the first-lien credit agreement will be calculated using Libor plus 575 basis points, up from Libor plus 275 bps under the original plan.

In addition, the amended plan now gives second-lien creditors a potential for cash interest payments if all of the existing first-lien debt is refinanced.

The reorganized company will not pay any cash dividends to these creditors until all second-lien credit agreement debt has been paid in full.

The amended plan also gives holders of 11% senior notes claims the right to participate in the company's $50 million rights offering.

Also, holders of intercompany interests will receive no distribution under the amended plan. These creditors were originally slated to retain their interests.

As previously reported, a $50 million rights offering will be available to holders of the company's 11% senior notes.

Sopris Capital Advisors LLC has agreed to backstop the rights offering and to convert $72 million in second-lien claims into equity of the reorganized company.

Movie Gallery will pay a rights offering commitment fee of 2.3% of the rights offering amount.

Also under the plan, the outstanding 11% senior notes will be converted into equity of the reorganized Movie Gallery, and the company plans to obtain an exit facility.

Reorganized Movie Gallery will issue 25 million shares of new common stock.

The company will also enter the amended first-lien credit agreement and an amended second-lien credit agreement.

The amended first-lien agreement will include a $597 million term loan and $25 million in synthetic letter-of-credit commitments, unless the letter-of-credit commitments form part of the company's exit facilities.

The term loan will bear interest at Libor plus 1,000 bps, payable in cash at Libor plus 725 bps beginning on the plan effective date, increasing by 25 bps on the first anniversary of the effective date, with additional 25 bps increases at the end of each six-month period following the first anniversary and payable in payment-in-kind interest of 275 bps beginning on the effective date, decreasing by 25 bps on the first anniversary of the effective date, with additional 25 bps decreases at the end of each six-month period following the first anniversary.

Under the amended second-lien agreement, holders of second-lien claims, other than the Sopris claim, will receive, in connection with the default occurring as a result of the company's failure to make a Sept. 10 interest payment, payment in kind of all amounts due in connection with the default.

For interest periods from Sept. 10 through the plan effective date, Movie Gallery will pay PIK interest, with interest accruing at Base rate plus the existing PIK margin increase of 75 bps and the default margin increase of 200 bps.

The initial principal balance on the amended second-lien credit facility will include the PIK interest amounts and will bear interest at a PIK interest rate of Libor plus 1,275 bps beginning on the plan effective date, increasing by 25 bps on the first anniversary of the effective date, with additional 25 bps increases at the end of each six-month period following the first anniversary.

Plan creditor treatment

Treatment of creditors will include:

• Holders of other priority claims will recover 100% in cash;

• Holders of other secured claims will recover 100% through either return of the collateral securing the claim or the cash equivalent of the collateral;

• Holders of first-lien claims will recover 100% through their share of the reorganized company's obligations under an amended first-lien credit agreement;

• Holders of second-lien claims will receive their share of the reorganized company's obligations under an amended second-lien credit agreement.

Sopris will also receive the second-lien conversion equity allocation;

• Holders of 11% senior note claims will receive their share of 75.44% of the unsecured claim equity allocation, 75.9% of the warrants to be issued by the reorganized company and 75.9% of litigation trust distributions, as well as the right to participate in the rights offering in an amount calculated by the rights offering equity allocation, for a total recovery of 22.1%;

• Holders of general unsecured claims against Movie Gallery, Inc. will receive their share of 0.596% of the unsecured claim equity allocation, their share of 0.6% of the warrants and their share of 0.6% of the litigation trust distributions; or, in exchange for assigning their claim to Sopris, these creditors will receive cash under a cash-out option.

However, under the amended plan, if the general unsecured creditor's equity allocation percentage multiplied by a $100 million pre-money equity value exceeds 9% of its claim, the creditors will receive either the portion of the unsecured claim equity allocation equal to 9% of the claim divided by the pre-money equity value or the cash-out option for assigning their claim to Sopris;

• Holders of general unsecured claims against Movie Gallery US, LLC will receive their share of 6.262% of the unsecured claim equity allocation, their share of 6.3% of the warrants and their share of 6.3% of the litigation trust distributions; or, if they assign their claim to Sopris, cash under the cash-out option;

• Holders of general unsecured claims against M.G.A. Realty I, LLC and MG Automation LLC will receive their share of $5,000;

• Holders of general unsecured claims against M.G. Digital, LLC will receive their share of $20,000;

• Holders of general unsecured claims and 9 5/8% senior subordinated note claims against Hollywood Entertainment Corp. will receive their share of 17.097% of the unsecured claim equity allocation, their share of 17.2% of the warrants and their share of 17.2% of the litigation trust distributions, or, if they assign their claim to Sopris, cash under the cash-out option; and

• Holders of equity interests and intercompany interests will receive no distribution under the plan.

Sopris has agreed to provide up to $10 million for the cash-out option, according to the amended disclosure statement.

A hearing on approval of the disclosure statement is scheduled for Feb. 5.

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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