HMV Gets Lifeline

Lenders including Lloyds Bank and Royal Bank Of Scotland are reportedly offering HMV a lifeline with a refinancing deal that will secure its immediate future.

The banks are believed to have agreed to the loans after HMV sold off its Waterstone’s book chain for £53 million ($86.9 million).

It was confirmed June 7 and met with mixed opinions as to whether the troubled music retailer-turned-360-degree music company could meet the high interest and fees attached to the new £220 million ($362 million) deal.

It’s anchored by the lenders holding warrants worth 5 percent of the company, which will be converted into shares next year.
The new money hasn’t come cheap as interest is due at about 4 percent more than Libor, the London Interbank Offered Rate that’s used as a benchmark.

The package is said to be made up of separate £70 million and £90 million loans, and a £60 million credit facility, which can be called upon if needed.

Some analysts say the terms are too much for a company that’s issued four profit warnings in six months. But investors who think it’s a good deal quickly pushed up the HMV share price by 14 percent to 12.25 pence.

Rumours of a deal surfaced a day earlier, pushing the share price up 14.5 percent to 9.36 pence.

HMV chief exec Simon Fox says the new bank facility “represents another important milestone in securing the financial stability of the group,” but overall business climate is murky at best.

The company is faced with a weak economy and intense competition from supermarkets and Internet retailers as well as the fast-growing popularity of digital downloading of music and books.

A survey published June 7 showed that British retail sales fell unexpectedly in May as low-wage growth and high inflation forced consumers to rein in spending.

As HMV’s core business of selling music has been battered by online competition and Internet piracy, its lenders may hope it’ll do better by branching out to sell high-tech gadgets such as iPods and tablet computers.

The company is also in talks with restructuring specialist Hilco about selling its 125 Canadian stores.