Struggling music retailer HMV Group announced its banking syndicate has agreed to ‘waive’ this month’s covenant test.
The entertainment chain – which recorded a year-on-year drop in sales of 16.6% in the run-up to Christmas – confirmed the banks have agreed to ‘amend’ the current covenant package on its borrowings.
This deal will result in a change of tests relating to the 12-month period ending April and July this year, providing the group with ‘significantly enhanced headroom’.
The group claimed it will have a ‘materially positive impact’ on profitability and cash flow – resulting in a 50% reduction in net debt over the next three years.
Although HMV said its net debt of £175-180m will meet expectations, it admitted the business will record a larger than predicted loss of some £10m for this full year.
But chief executive Simon Fox said: “These developments represent a material improvement in our financial position relative to the statement we made at the time of our interim results.
“The new relationship with our suppliers and the support of our banks will now enable HMV to wholeheartedly focus all of its energies – working in close partnership with its suppliers, on serving the changing needs of its customers ever more effectively.”
The music retailer explained it was able to alter its current covenant due to a ‘change in the nature’ of its relationships with music and film suppliers, including the intended grant of warrants representing 2.5% of its equity to these suppliers.
Chairman and CEO of Universal Music UK, David Joseph, added: “HMV is a vital part of the UK music industry.
“We look forward to working closely with HMV in the years ahead.”
Earlier this month, HMV admitted ‘material uncertainties’ could cast doubt on the group’s ability to continue as a going concern.
By Andy Pearce
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