TROUBLED music retailer HMV has called in KPMG for debt management advice to try to stop it breaching upcoming bank covenants.
HMV, which experienced a torrid day yesterday after admitting that credit insurers had reduced their coverage of its sales amid fears of its creditworthiness, has hired the accountant to provide specialist debt advisory services, sources told City A.M.
The work is expected to involve renegotiating its bank borrowing commitments ahead of covenants that are due in April.
“It announced that it had a problem with its bank covenants and it had to get someone in there, and that someone was KPMG,” one source said. “It is true that it has called them in on this occasion and for this reason.” The retailer has come under increasing pressure since admitting in its trading update two weeks ago that it will close 60 UK stores this year to avoid breaching its banking covenants. Like-for-like sales plunged 13.6 per cent in the five weeks to 5 January, a critical period for the year’s profits.
But HMV, led by boss Simon Fox, “is still a profitable business” that is expected to make a £46m full-year profit, and its suppliers remained “fully behind” the company, the source told City A.M.
HMV made £74.2m profit before tax in 2009, up 17.7 per cent from 2008’s level of £63m. But its debt has rocketed after a series of acquisitions – from just £6.5m in the year to June 2009 to £67.6m by June 2010 and £151.6m by October 2010. In December it said it will sell its flagship Oxford Street store for £13.75m, to pay off debt it is believed.
HMV is expected to make another announcement today as it battles to restore its credibility.