HMV back on song after banking lifeline
Saturday 21 January 2012
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The stock market value of HMV, the entertainment retailer, nearly tripled yesterday after it agreed a crucial lifeline with its banks, which are to waive a series of tests on its loans.
Its banks have eased its covenants in response to HMV granting its key music and film suppliers, including Universal Music, EMI, Warner Brothers, Sony Music and Disney, warrants over 2.5 per cent of its equity. HMV's banks are waiving and re-setting covenant tests for the 12 months to 30 April and July 2012, with "significantly enhanced headroom".
HMV said these changes will have a "materially positive impact" on its profitability and cash flow. The group now expects to halve its net debt – set to be as high as £180m at its year end – over the next three years. The news sent HMV's battered shares up by 4.75p, or 198 per cent, to 7.15p. The group is trying to diversify away from the declining market for CDs and DVDs by focusing on sales of headphones, speakerdocks, and tablets.
But HMV is still not out of the woods, and it forecast a "slightLy larger loss of around £10m" for the year to 30 April. Its like-for-like retail sales fell by 8.2 per cent for the five weeks to 31 December.
Simon Fox, chief executive, said: "These developments represent a material improvement in our financial position" relative to its trading statement this month.
David Joseph, the chief executive of Universal Music UK, said, "HMV is a vital part of the UK music industry and we are delighted that the support of the film studios and music companies is helping to secure its future. We look forward to working closely with HMV in the years ahead."
HMV has put its live music unit up for sale to pay down its debts.
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