HMV shares plunge on debt warning

13 December 2012

HMV Group has announced that it may breach its banking covenants by early next year.  Consequently, the shares fell nearly 40% on the news.  The company has seen a 13.5% reduction in like for like sales in the 26 weeks to the end of October and net debt has risen to £176m.  The company has undergone a number of new initiates to try and boost sales such as showcasing technology in a number of revamped stores.

So far the banks have been supportive while so many commentators have predicted its demise.  

The company is still hanging on to their credit.  It is interesting that Comet went into administration despite having stable sales but a huge debt whereas HMV's debt is growing and sales have been sliding for the last 2 years.  One reason is because HMV occupies a unique place in the market and it does not have any direct competitors on the High Street.  There also appears to be a plan in place to turn the business around albiet slowly.  They have sold off the live music businesses to try and trim debts.

Previously HMV have not ruled out the use of a company voluntary arrangement or CVA to try and rescue the business.  However in the recent statement they have said they do not wish to close down any stores which a CVA can do.