HMV High Risk For Insurers

HMV’s share price has tumbled below 24 pence, with the latest fall sparked by the news that insurers were reviewing the level of cover they offer the group’s suppliers.

The stock price is down nearly 50 percent over the last three months, as investors have been deterred by poor Christmas sales and the company’s admission that it may have trouble keeping within its bank covenants.

The Financial Times published an e-mail from the credit and collections department of Sony’s DADC division, which warned the company’s record label managers of a “quick and drastic reduction” in levels of credit to HMV covered by its insurance policies.

“Our credit insurers have significantly reduced our insured credit limit on all HMV entities,” the e-mail said. “Based on the current HMV balances, the limit is not sufficient to support any sales on an insured basis moving forward.”

One of the few investors still buying into HMV is Russian oligarch Alexander Mamut, who has increased his stake in the troubled entertainment retailer to more than 6 percent.

While analysts are suggesting HMV’s 360-degree business model isn’t working and the group needs to be broken up, Mamut’s arrival as a potential suitor for the company couldn’t have been better timed.

HMV refused to comment on reports that Mamut has already met with its board.

Global financial services firm UBS also put the boot into HMV by saying it expects it to suspend its dividend in advance of a potential covenant re-negotiation.

The group is restructuring its portfolio of 600 HMV and Waterstone’s stores in an attempt to cut its property costs by £15 million ($23 million).

The problem is that HMV’s most sought-after property assets are in big cities and market towns, which also happen to be the most profitable stores.