HMV secures bank loan but cedes equity
STRUGGLING music retailer HMV agreed to give its banks a five per cent equity stake in return for a costly last-ditch loan refinancing yesterday.
The refinancing deal struck with lenders RBS and Lloyds gives HMV £220m in two loans and a revolving credit facility and wins it breathing space as it fights for survival.
But the package of three loans comes with high fees including an exit fee upon repayment, and bars HMV from paying a dividend while a £90m term loan is outstanding.
“The rate at which the exit fee accrues will start at an amount equal to five per cent per annum and will ratchet upwards on April 1 2012 to eight per cent per annum and again on January 1 2013 to 14 per cent per annum,” HMV said in a statement.
Analysts warned that HMV’s falling sales and weak cash flow may cause it to struggle to repay the debt. Peel Hunt analyst John Stevenson said the exit fee was “a clear incentive to pay down the debt quickly” but warned that “short of an equity fundraising, we struggle to see HMV generating sufficient cash flows to repay the debt in the required timescale”.
HMV had a £79m free cash outflow cash flow in the four months to October 2010. Like for like sales fell 15 per cent in the four months to the end of April and it said it was continuing to trade in line with this.
Arden analyst Nick Bubb said the interest rate charge alone would wipe out any earnings for HMV this year.