Hilco buys HMV debt and throws it possible lifeline

The restructuring firm Hilco UK said today there is a "viable underlying" business at HMV after it effectively took control of the failed retailer by purchasing its debt, handing a potential lifeline to the group's survival prospects. Hilco, the owner of Denby Pottery, has acquired all the outstanding debt in HMV from its lenders, including Lloyds and Royal Bank of Scotland, for nearly £40m but not the business itself.

The 223-store retailer collapsed by appointing Deloitte as administrator last week and Hilco remains the front-runner to acquire HMV and keep it on the high street. While the debt deal gives Deloitte more time to come to a rescue arrangement, it is inevitable some of the chain's stores will eventually close.

The turnaround firm's bid for HMV is thought to have the backing of many of the world's biggest music and film companies, such as Warner Music, Sony Pictures and 20th Century Fox. Hilco has established relationships with many of these suppliers, as it acquired HMV Canada and its 100-plus stores from the UK group in 2011.

The debt purchase will raise hopes for HMV's 4,000-plus staff at a traumatic time for the high street that has seen the electricals retailer Comet, the camera specialist Jessops and DVD rental firm Blockbuster call in administrators in recent weeks.

Jessops and Comet have closed all their shops, while Deloitte, the administrator to Blockbuster, has unveiled plans to shut 160 shops. However, the fact HMV has a large supplier base and a number of loss-making stores means any rescue is likely to be complex and may not be sealed quickly.

Hilco confirmed it had acquired the entertainment retailer's debt and said it "believes there to be a viable underlying HMV business and will now be working closely with Deloitte, who as administrators, are reviewing the business to determine future options".

The restructuring firm is thought to have paid about 33p in the £1 for HMV's debt of £120m. Having stood in the shoes of the banks and assumed the risk for all the retailer's debt, Hilco is now secured creditor to HMV. This means it will be first in line to recover funds if Deloitte fails to eventually sell HMV to the turnaround firm or another possible bidder, and a restructuring process ensues.

Deloitte's Nick Edwards said: "Stores continue to trade and at this time we remain hopeful of securing a long-term future for HMV as a going concern." The accountancy firm appointed Hilco to assist it running the chain this week, while it seeks to hammer out a formal sale.

The private-equity firms, Endless and Better Capital, and the restructuring company Gordon Brothers have also expressed an interest in HMV. The video games retailer Game is eyeing up to 45 of its stores.

Deloitte did a U-turn on Monday and said that customers could redeem up to £7m of HMV's gift cards, despite saying last week they would not be honoured.