HMV DEBT REFINANCING
Q.WHAT DOES THIS HMV REFINANCING INVOLVE?
A.HMV’s lenders RBS and Lloyds have agreed to supply two term loans of £70m and £90m that mature in September 2013, and a £60m revolving credit facility. The deal refinances its previous £240m debt facility with £220m of fresh debt. The banks will charge HMV interest of four per cent over the London Interbank Offered Rate, currently about 0.8 per cent. They will also levy an exit fee on full repayment of the £90m loan, and bar HMV from paying any dividends until it is repaid. Finally, HMV has agreed to give them share warrants that can be converted into equity equivalent to five per cent of HMV’s total share capital any time after 30 June 2012.
Q.ARE THE FEES REASONABLE?
A.The interest rate is reasonable but the exit fee has a sting in its tail. The banks will charge HMV an exit fee of five per cent, or £4.5m, if it repays before 1 April 2012. That rises to eight per cent after April 2012 and to 14 per cent – or £12.6m – if the loan is not repaid by 1 January 2013.
Q.HOW SIGNIFICANT ARE THE WARRANTS?
A.Warrants are often a first step by banks towards taking control of a company. The backers of retailer Jessops also exercised warrants when the companies were unable to repay debt. While five per cent is not large, there is potential for it to grow.