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Banks Agree To Support Troubled HMV

Published January 24, 2012 by |

The news of HMVs troubles have been on the grapevine for sometime, with the HMV Group forced to sell Waterstone’s and their Canadian businesses within the last 12 months. However the firms troubles have become more evident following reports that the British-based retailer is to receive support from banks.

HMVs help comes in the form of an amended covenant package on its borrowings from the joint investors, the banks have also waived covenant test and will be re-tested when the retail group has more room for manoeuvre. For those who don’t work in finance, this means the banks have waived a series of tests on HMVs loans that will allow the group to continuing paying its debts.

Part of the amended package gives HMV a much-needed boost, as suppliers have agreed to cut their own prices, potentially allowing savings to be passed on to consumers. In return suppliers including Universal, EMI and Warner Brothers will receive a 2.5% stake in HMV.

HMV believe that it can reduce its debt, which is set to stand at £175-180m by up to 50% debt over the next three years.

“Today’s announcement is enormously welcome,” said HMV chief executive Simon Fox. “These developments represent a material improvement in our financial position relative to the statement we made at the time of our Interim results.”

Of course the major factor in all of this is price, and for what ever reason HMV haven’t been able to compete. Although It appears that this support from the banks has given HMV a much-needed shot in the arm, however there is more to it than just simple pricing wars.

HMV is one of the largest entertainment retailers in the UK and its disappearance would have a massive impact on high street sales.

HMV given lease of life by bank support

Despite the decline in CD and DVDs sales this is where the potential loss would have had the biggest impact, as this is where HMV have built their reputation. It’s sad to say at this point in time, due to the dominance of Game and Gamestation and online retailers, HMV wouldn’t be little missed to the video game industry.

That said it is through CDs and DVDs that HMV have found themselves in this trouble. It is a market that has been in decline for some time, however it would appear from the outside that HMV have been reluctant expand into alternative markets to make up for the decline in sales of aforementioned CDs and DVDs. For example, digital distribution for video, which the likes of iTunes, LoveFilm and Netflix are the current market leaders and an aspect HMV still to date have entered into.

But where do video-games come in? Here, that’s where.

In hindsight the obvious solution for HMV to avoid their current situation would’ve been to seek said alternatives and expand into more prosperous areas, of which video-games could possibly be one.

However it appears this latest financial scare has been a wake up call for HMV to do just that, with HMV chief executive Simon Fox keen to increase those areas “As a key part of this we remain committed to improving our specialist ranging and merchandising of music and DVD whilst also continuing to grow our sales in portable technology and further developing our online and digital offers.”

This could potentially see HMV increase its presence in the video game market. This can only be a positive, more movement into a more profitable area in gaming could help cement the retailers future. While a larger presences in the gaming market will help it compete with other games stores and sites, which in turn means better prices for us, the consumer.

Whether it can keep up with a fast-moving market, or fall behind once again remains to be seen.