S&P downgrades Movie Gallery

Standard & Poor's said it lowered Movie Gallery Inc.'s corporate credit and bank loan ratings to CCC+ from B-, its unsecured note rating to CCC- from CCC and the bank loan recovery rating to 5 from 3, indicating that lenders can expect negligible recovery of principal (0% to 25%) in the event of a payment default or bankruptcy. The outlook is negative.

S&P said the downgrade reflects its growing concern that the company's operating results will remain pressured in 2006 by weak industry fundamentals. Movie Gallery's need to amend its credit facility for the second time in less than one year is indicative of pressures on its current and near-term performance, the agency 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, S&P said.

EBITDA coverage of interest was 1.9x in the third quarter of 2005 and leverage was about 5.8x EBITDA in the 12 months ended Sept. 30.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.