You are viewing your 1 free article this month. Login to read more articles.
Analysts have renewed their call for a break-up of HMV after the group was hit by credit insurers reviewing cover levels. The concern has largely been around the music side of the group, with book publishers thought to be trading normally with Waterstone's, even though one book distributor, Hachette's Littlehampton, said it had seen a reduction in the limit of its insurance cover.
HMV Group put out a statement yesterday (19th January) confirming that credit insurers were "reviewing the level of cover they provide on the group", but adding that it "had no difficulty in obtaining stock". Concern was raised after HMV said that staying within its bank covenants would be "tight". HMV has now hired KPMG's debt advisory team to assist it with meeting the requirements ahead of its financial year-end in April. Meanwhile, music publishers have written to the Times expressing their support and stressing that it was business as usual at the chain. "http://news.sky.com/skynews/Home/Business/HMV-Calls-In-KPMG-Amid-Bank-Co... target="_blank" title="HMV">http://news.sky.com/skynews/Home/Business/HMV-Calls-In-KPMG-Amid-Bank-Co... is at the heart of our industry, and they have full support from all of us," the letter said.
Random House told The Bookseller that it was trading normally with Waterstone’s: a spokesperson stressed that it was business as usual: "Waterstone’s is a valued high street range customer and we are trading with them under our normal terms."
However, Littlehampton Book Services told its clients that insurers had "significantly reduced" insurance cover for supplying Waterstone’s. In a letter to client publishers, the Hachette distributor said "our insurers have reduced our insurance limit significantly". Hachette though said it was trading normally with Waterstone's and that it intended to "continue supporting the high quality, well-managed and profitable businesses of Waterstone's and HMV".
Analysts spoke to by The Bookseller said that the insurance disruption would not curtail the group's ability to trade, but the latest twist in the HMV Group saga reignited suggestions that the retailer could be broken up.
Kate Calvert, retail analyst at Seymour Pierce, said: "The credit insurance issue puts HMV under more pressure. It becomes more likely that the final game plan will be to break up the group. But since it would be a distressed sale situation it won’t be enough to save the music business." Nick Bubb, analyst at Arden, said: "It is unhelpful to have a potential working capital squeeze ahead of the covenant test in April. It increases the pressure on management to make disposals and/or break the group up."
John Stevenson, analyst at Peel Hunt, said: "There is now more pressure on HMV [Group management] to do something. It all depends on what the suppliers think about the credit insurance. It will get the support of suppliers but they won’t be happy, as they’ll have to take on the risk." Unlike other retailers that have been negatively affected by the pulling of credit insurance, Stevenson said these businesses were "right to the wall" whereas HMV Group is not in this position.
The bank covenants relate to the ratio of rent to profits: with profits now likely to be at about £46m, the lower end of expectations, the group is closing 60 stores in order to make sure it does not breach its covenants. Analysts said the insurers would continue to feel nervous until the covenant test was passed. According to Sky News, KPMG's debt advisory team will assist with a project that could include renegotiating some of the terms of its borrowing facilities with its lenders. The Times reports that KPMG could ask the banks to waive the covenant test in return for a fee.