HMV Trades Equity For Breathing Space

Music retailer HMV has handed out 2.5 percent of its equity to suppliers who are prepared to cut their prices and agreed to a crucial breathing space with its banks.

Universal, Sony, EMI and Warner are among the suppliers taking equity warrants in return for lowering their prices and easing terms.

The growth of online sales has hit the record companies as hard as it’s hit HMV and they now appear prepared to work together to weather the storm.

This new arrangement and the news that its lenders are prepared to waive a series of tests on its loans saw the troubled high street chain’s share price almost triple from 2.4 pence to 7.15 pence.

“It will be significantly easier to sleep at night,” said HMV chief exec Simon Fox. “When you have material uncertainties hanging over you it is a very unpleasant and uncomfortable place to be.”

Before Christmas, Fox was forced to put HMV’s 13 concert venues and various festivals on the block in a bid to cut some of its £164 million ($256 million) debt.

In the last five weeks of the year, HMV’s busiest period, sales fell by 8.2 percent as CD and DVD sales collapsed.

One of the banks prepared to give the company a nine-month breathing space is RBS, the taxpayer-owned bank, which recently pulled the plug on the Peacocks.

The fashion chain is now in administration and – with RBS apparently keen to reduce its lending to major retailers – there were fears that HMV could follow it down.

The banks are now waiving their covenant tests for the 12 months to April 30 and resetting the targets in order to allow HMV “significantly enhanced headroom.”

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 more than 2.5 percent of its equity.

HMV says the changes will have a “materially positive impact” on its profitability and cash flow.

With the company expected to finish its financial year with debts of at least £180 million, the target is to reduce that by half over the next three years.