HMV pens refinancing deal

HMV’s short-term future has been secured thanks to a 220m refinancing package with Royal Bank of Scotland and Lloyds TSB that will see the state-owned banks take a five per cent stake in the chain.

The deal comes at a potentially high price, however, with punitive interest rates (up to 14 per cent) kicking in if the 90m loan element of the package is not repaid by January 1st, 2013. Initially, however, the rate has been set at just under five per cent.

HMV has endured high profile hardships for some time, culminating in the sale of its book chain, Waterstone’s, to Russian billionaire Alexander Mamut for 53m last month. It was CEO Simon Fox’s pledge to use that money to take a chunk out of the firm’s 170m debt that made this newly announced rescue package possible.

The 220m facility comprises two separate loans of 70m and 90m plus a 60m revolving credit facility, all of which mature on 30th September 2013. The chain will pay no dividends until after that date.

In return, the banks have been issued with warrants which represent five per cent of HMV’s capital and can be converted into actual shares after June 30th 2012.

HMV, with Fox to the fore, has battled hard to restructure first its business and now its finances – whether or not it can complete the journey all the way back to genuine good health remains to be seen, but this new deal at least gives it a fighting chance.

The company’s share price jumped eight per cent on the back of the announcement, but influential analysts remain sceptical.

"The banks clearly have the company over a barrel," said Kate Calvert, retail analyst at Seymour Pierce. "We are maintaining our Sell recommendation as we continue to believe that the business is a value trap and the Waterstone’s deal is expected to be dilutive to earnings."

John Stevenson of Peel Hunt, meanwhile, said the deal would allow HMV’s management to focus on running the company again, but warned: "We fear this in an interim pause before the next step down."

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