UK taxpayers get back-door stake in HMV
British taxpapers became shareholders in HMV today - albeit indirectly - after the embattled retailer came to a refinancing deal with its banks.
Milestone: HMV chief Simon Fox
The two part-taxpayer owned banking giants, Lloyds Banking Group and Royal Bank of Scotland, pulled the group back from the brink of collapse today by extending a £220m lending facility.
But this entails the lenders' acquiring warrants in the company worth up to 5% of the company's shares. This means the banks will benefit from any recovery in HMV shares in the next few years.
Shares in the battered High Street name - which have lost 86% of their value over the last year - shot up 12% or 1.5p to 13.75p this morning, on news of the deal.
Shareholders who had bought into HMV as a dependable dividend payer will be disappointed to learn that the deal suspends any pay-out until at least part of the loan has been repaid.
HMV had come close to collapse, and staff and shareholders had feared it could suffer a similar fate to high street chain Woolworths, which went under in 2009.
But the deal was expedited by the recent sale of HMV's book shop business Waterstone's to Russian billionaire Alexander Mamut for £53m, a disposal that the struggling group's lenders had made a prerequisite to any refinancing.
Simon Fox, HMV's chief executive, said the new banking facility was another important milestone in securing the financial stability of the group, which has issued several profit warnings this year.
The City, however, was less enthusiastic over the terms of the deal.
Kate Calvert, an analyst at Seymour Pierce, said: 'The banks clearly have the company over a barrel, which is not surprising given that current trading remains in line with the 17 weeks to April 30.'
Nick Bubb, an analyst at Arden Partners, said the banks had thrown HMV a lifeline.
He added: 'Against the odds, HMV has survived in the short term on the hopes of a successful switch to selling 'technology'.
'But this seems to us to be a triumph of hope over experience and we would be surprised if the good results from the first six stores can be replicated in a wider roll-out.'
Shares in HMV had jumped 50% yesterday as news of a possible deal filtered through.
The new deal will replace the current lending facility of £240m, after the banks demanded that some of the proceeds of the Waterstone's sale were used to reduce its debt.
HMV will have to pay up to 14% on some of its loans by 2013 as the banks increase pressure to repay its debts.
The group also said today that current trends in trading remained in line with the 14% drop in total sales reported on May 20.
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