No Sale In Sight, Movie Gallery Files For Chapter 11 Bankruptcy

It should come as no surprise to anyone that video-rental chain Movie Gallery has filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Eastern District of Virginia, Richmond Division, while announcing a plan to reorganize and restructure its debt. This has been coming for a while, following a failure to meet certain financial obligations and a futile search for strategic alternatives, such as a sale. As the AP notes, the company has been under a heavy debt load since its 2005 purchase of Hollywood Video for $1 billion. Release.

The company has also tried to turn its performance around by making digital investments, such as its purchase of Moviebeam earlier this year, and its planned launch of an online DVD rental service to counter Netflix (NSDQ: NFLX) and Blockbuster. But, while they might play a role in recovery, neither of these things could counter the deterioration of its core retail business.

Update: All of the company’s initial bankruptcy filings are available here. As stated in the press release, the company’s largest creditor is investment firm Sopris Capital Management, which has agreed to a restructuring, turning a big chunk of the company’s debt into equity. Altogether, the company looking to restructure $325 million in “11% Senior Notes” due May, 1 2012. It also owes a number of major movie studios that have extended the company trade credit, including Paramount Home Video ($11.2 million), Sony (NYSE: SNE) Pictures Home Entertainment ($10.9 million) and 20th Century Fox Home Entertainment ($7.6 Million).

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