HMV, the music and DVD retailer has agreed a lifeline package from its lenders, including Lloyds Banking Group and Royal Bank of Scotland.
The lenders have imposed tough lending terms on HMV for their £220 million lifeline.
These include an interest rate that’s 4% above the current market rates and exit fee of 14% on £90 million of the facility if it hasn’t been repaid by January 2013.
No dividends on shares will be paid until this slice of the loan has been repaid.
Also under the plan, warrant representing 5% of HMV’s share capital will be issued to the banks.
HMV recently sold Waterstone’s to Russian billionaire Alexander Mamut and this new lending package is dependent on this sale being completed at a shareholder meeting later in June.
Kate Calvert, retail analyst at Seymour Pierce, said “The banks clearly have the company over a barrel.” and added “We are maintaining our Sell recommendation as we continue to believe that the business is a value trap and the Waterstone’s deal is expected to be dilutive of earnings.”
HMV plans to convert a number of its larger stores into centres for buying electronic entertainment gadgets such as iPads and iPods and related apparel, as well as growing its ticketing and festival business.
HMV shares rose by up to 10% following this lifeline announcement, however, at the time of writing were down slightly at 12.07p.