The bank debt of troubled video rental firm Movie Gallery traded down 1/2 a point to par after the company's share price tumbled on news it would not pay a quarterly cash dividend for the third quarter of 2005. "People are concerned about the company because its equity is down," said a trader.
Movie Gallery said it would suspend the cash dividend to focus on debt reduction and the working capital needs of its business. In a press release, it said it would continue to reevaluate its dividend policy and hopes to reinstate a regular quarterly cash distribution as soon as conditions permit. The company would not comment on how much it hopes to reduce its debt by.
Poor market conditions in the video rental industry have caused Movie Gallery to borrow an extra $50 million under its term "B" loan. It has also increased the letter of credit sublimit under its revolving credit facility to $40 million from $30 million. In addition to the 75 basis points increase on its term "B" loan, it has added a tier to the pricing grid in the senior credit facility. If its leverage ratio, defined as total debt to EBITDA, exceeds 3.25 times, the interest rate margin on the revolving loans and term loan "A" will be 3 1/2% over LIBOR. The coupon is currently LIBOR plus 2 3/4%. Movie Gallery will pay an amendment and consent fee equal to 0.25% of the aggregate total commitments of the lenders that consent to the amendments.