HMV closes on refinancing deal

Embattled high street retailer HMV was today reported to be on the verge of a refinancing deal that will secure its immediate future.

The continued support of HMV’s lenders, led by Lloyds Banking Group and Royal Bank of Scotland, follows the recent sale of HMV’s book shop business Waterstone’s to Russian billionaire Alexander Mamut for £53 million.

HMV’s debts have risen to a bigger-than-expected £170 million in recent months but the Sunday Times said a deal has been agreed in principle with the banks on a fresh two-year loan package worth about £210 million.

The terms are expected to be signed in the coming weeks and will draw a line under recent uncertainty over the future of the chain, which has struggled to counter falling sales of CDs and DVDs as more consumers shop online and supermarkets compete for business.

According to today’s report, lenders will want to see the company pursue a new strategy focusing more on the sale of hi-tech gadgets such as iPods and tablet computers like the iPad.

They have also demanded that a chunk of the proceeds from the Waterstone’s disposal is used to pay down debt. The new arrangements, which are likely to cost HMV several million pounds in one-off fees and increased interest payments, mean the company is unlikely to pursue a company voluntary arrangement.

The controversial insolvency tool allows struggling businesses to reduce their rent bill by jettisoning unwanted stores or properties. Instead HMV intends to quit only 60 UK stores out of a total of 285.

Poor sales have led to four profit warnings in six months but chief executive Simon Fox has been encouraged by the performance of six trial stores using the technology-led format. He is said to want another 150 shops to adopt the new focus by the autumn.