S&P downgrades Movie Gallery

Standard & Poor's said it lowered its corporate credit and bank loan ratings on Movie Gallery Inc to B from B+ and the unsecured note rating to CCC+ from B-.

The outlook is negative.

The downgrade reflects S&P's growing concern that the company's operating results will continue to be pressured by poor performance of movies at the box office. Movie attendance in the United States dropped 17% in the second quarter, and declines have persisted through the end of August.

S&P said the ratings on Movie Gallery reflect the risks of operating in a mature and declining video rental industry, the company's dependence on decisions made by movie studios, increased operating risk due to its acquisition of Hollywood Entertainment Corp., its high leverage, and the technology risks associated with delivery of video movies to the home.

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