A new banking deal gives the struggling music dealer some breathing space.
I certainly didn't expect to be writing this headline today. I know the doubling is only from 2.4p to 4.8p, bringing the market cap up to just £20m from £10m, but it's still better news that I would have hoped for at this point.
But why the jump?
It's all due to a very welcome lifeline the banks have thrown to HMV (LSE: HMV), which was all set to breach its next banking covenant tests later this month. Those tests have now been waived, and the next tests -- due in April and June -- are to be reset with what today's announcement called "significantly enhanced headroom".
This has come as a response to a new arrangement struck between HMV and its suppliers, which saw an agreement to grant them warrants representing 2.5% of HMV's equity. Such a grant, which gives HMV's suppliers an option on taking up shares in the future, is a way to incentivise them to help keep HMV afloat; if HMV pulls back from the brink, the warrant holders could make a tidy sum, but if they pull the plug then they'll get nothing.
Debt reduction targets
HMV still expects to be carrying net debt of around £175m to £180m by its April year-end, and to record a £10m loss for the year, but tells us that the new arrangement should help it achieve its aim to halve its debt over the next three years. And that plan does not include any extra cash that might come from disposals made as a result of reviewing HMV's Live business.
Chief executive Simon Fox told us: "These developments represent a material improvement in our financial position relative to the statement we made at the time of our Interim results."
So what does it mean? Well, HMV now effectively has a good bit more breathing space to try to meet its cash flow and debt reduction targets. If missed, it would almost certainly have led to loans being called in and HMV's days as a viable entity coming to a close -- which is something the firm effectively confirmed when it announced its disappointing Christmas sales figures.
Does HMV have a chance of reaching the end of the tunnel now? Yesterday I'd have said no, but today's news means I'm beginning to see some light ahead -- I just hope it's not an oncoming train.
But what do you think? Do share your thoughts below.
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