Movie Gallery increased the coupon on its $700 million term "B" loan by 75 basis points, causing the loan price to move a point to 99. The coupon change is an increase on the 25 basis points investors had expected. A trader said tough market conditions in the video rental market had caused the loan price to stay below par, despite the big coupon increase.
Movie Gallery sought covenant relief on its term "B" loan more than a week ago. The firm's operating results are under pressure because of the poor performance of movies at the box office. It posted a $12.2 million net loss in the second quarter of 2005, compared with a $10.6 million profit in the same period a year ago. In a research report, Merrill Lynch said it estimates the company's leverage would be 3.1 times at fiscal 2006, outside the 2.5 times net leverage limit in its loan agreement.