HMV in the Verge of Breaching Banking Covenant
Fearing that it may breach its banking covenants after major setbacks in the sector, high-street music and book retail chain HMV has called in debt advisers from KPMG in preparation for its imminent meeting with credit insurers and a loan covenant test to be conducted by its lenders on April.
KPMG’s appointment might see sweeping changes in HMV‘s cost-reduction programs. HMV chief Simon Fox said the company is going through tough times meeting the requirements of the covenant test, and to reduce costs, he added, nearly one in ten shops of HMV might be shut down while one of HMV’s stores in Oxford Street is bound to be sold for £14 million to reduce the group’s dividend by 50 percent and save the same amount.
HMV faces difficulty in convincing its insurers to cast support to the business. One of its main credit insurers, Atradius, has already withdrawn 20 percent from the amount owed to suppliers of HMV.
The music chain industry has suffered major losses when two of its major key players, Woolworths and Zavvi, failed. But HMV tried to water speculations their business might come next, saying the “business remains a core channel to market for them” despite the reduced availability of credit insurance to suppliers of some companies following the demise of the two.
On the other hand, some key record labels in the industry expressed their support for HMV in a letter to the Times newspaper. David Joseph, chairman and chief executive of Universal Music UK, Ged Doherty of Sony Music UK and Christian Tattersfield, chief executive of Warner Music UK, all vowed to support HMV amid reports its credit insurers are gradually shaving credit insurance for fear of the current trading status of the company.
In the letter, the executives said they will continue to supply HMV with their music, adding that the firm is “at the heart of the industry.”