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HMV secures new loan agreements, but at a cost

By | Published on Wednesday 8 June 2011

HMV

So, HMV yesterday confirmed to its investors that it had secured two years a new financing from its bankers, giving the flagging entertainment retailer a £210 million loan facility.

It means fears that HMV might breach terms of its existing loan agreements, causing all sorts of trouble, have been allayed. Though, City types were keen to point out yesterday, at a cost; that is to say the firm’s new banking agreements are expensive. So much so, while the group’s share price moved up on the announcement new loan terms had been agreed, it slipped down again later in the day once the detail of the new banking agreements had been digested by those who understand these things.

Said City types noted the high interest rates, the possible exit fees and the warrant that could give the banks a 5% stake in the company. Some were also concerned that this agreement would only run for two years, with some wondering whether – even with more secure funding in place – HMV CEO Simon Fox can turn round his company’s fortunes in such a short period of time.

That said, Fox would probably stress that his reinvention of the HMV business began a few years back, when he started diversifying the company into live music, artist management and digital fulfilment. That diversification resulted in most of the loans that have been causing him problems for the last year, problems that sort of put his grand plan for reinvention on hold. Now, with the new loan terms agreed, however harsh they may be, his transformation of the business, already two years in, can continue.

The potential of HMV’s operations in the live and management space remains good, especially if the company can figure out how to integrate its content and event assets. The big challenge, though, remains their high street stores, the biggest part of the company, and the weakest. Attempts to diversify the product range in those stores has had mixed results, though Fox insists the expansion of the tech and gadget product lines has proven successful, and will be a key priority moving forward.

Whether the expansion of tech departments will be enough to rescue the HMV high street operation – especially in bigger cities where competition in that domain is high – remains to be seen. The bankers were reportedly impressed with this strategy.

Either way, and despite the lukewarm reception in the City yesterday, Fox will be hoping that with the Waterstones sale and the new banking agreements, he and his top team can stop fire-fighting for a while and set about finishing the big revamp he initiated two years ago, slightly less in the spotlight. That said, with a music brand as seminal as HMV, the music industry and the mainstream media are likely to continue to keep a close eye on what’s going on at the last entertainment retailer on the high street.



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