Despite HMV Group issuing three profit warnings this year its backers, which include state-owned Lloyds Banking Group and Royal Bank of Scotland, agreed to a deal that replaces the current lending facility of £240m.
The refinancing issues warrants to the lenders worth five per cent of HMV, which can be converted into shares from next year. Two separate term loans of £70m and £90m have been granted by the banks, plus a revolving cash facility of £60m. All three of these loans mature in September 2013.
HMV also faces an interest rate of four per cent above current market rates, and the deal is subject to the proposed £53m disposal of book chain Waterstone’s. An undisclosed amount of the proceeds of this sale will be used to pay down the existing loan facility.
An exit fee has also been included which starts at an amount equal to five per cent per annum and will increase to eight per cent per annum on April 1 2012, and again on January 1 2013 to 14 per cent per annum if the loans are not repaid by that date.
Richard Curtin, special counsel at Faegre and Benson who has worked on several retail cases, welcomed the news, but warned that the terms of the refinancing were expensive for HMV.
He told insolvencynews: “You hope everything will be ok but there is a cost here. Four per cent above the market rate is expensive, as are the exit fees.
“I don’t know what caused the company to have difficulties but I wonder if those problems have been addressed, because if they haven’t and you add the costs together, the same problems will resurface.”
HMV plans to revive its fortunes by focussing on electronic gadgets and growing its ticketing and festival business.