HMV distributors denied credit insurance

New blow to HMV after fears over loan covenant and grim Christmas trading

Distributors to HMV Group have been denied credit insurance in a further sign that the struggling firm behind Britain's largest entertainment chain is trading perilously close to its solvency limits.

Distributors have been firing off urgent emails to record labels and publishers demanding a pledge that, should HMV go bust, any bad debts incurred would be covered.

One message, seen by the Guardian, states that all cover in relation to goods supplied to HMV Group had been removed by one credit insurance firm on 12 January. The removal of credit insurance can make it difficult for already struggling businesses to secure plentiful stock.

The withdrawal of credit insurance comes two weeks after HMV announced plans to shut 40 HMV stores this year almost one in 10 as well as 20 outlets of Waterstone's, the book store chain it also owns. The radical downsizing plan is part of urgent measures designed to cut costs ahead of a critical loan covenant test in April. Chief executive Simon Fox has admitted meeting conditions of the test "will be tight".

HMV last month also announced it would halve its dividend, saving it about 13m. A month earlier the group announced the 14m disposal of its main HMV store on Oxford Street to pay down debt.

Comparable sales for the traditionally busy five festive weeks to 1 January were down 13.6% at HMV in the UK and Ireland. Fox estimated that about 5 percentage points of this decline was due to shoppers staying away because of exceptionally heavy snow across much of the country. In addition, however, HMV continues to lose competitive ground to supermarkets and VAT-free online retailers such as Play.com and Amazon.

HMV shares, up 1p at 26.25p, have lost 80% of their value in the last two years a! nd a num ber of analysts have questioned whether it has a viable future. Latest figures from research house Data Explorers suggest short positions have been taken over 23.9% of HMV shares, making it one of the most negatively viewed companies on the stock market.

One investor who appears to take a more positive view is Russian retail tycoon Alexander Mamut who has continued to build his stake in HMV despite a string of disappointing updates from the group. He recently increased his holding to 6.1%


guardian.co.uk Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds


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