Last updated: January 22, 2013 6:20 pm

Hilco UK buys debt of HMV to gain control

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Hilco UK, the retail restructuring group, has acquired the bank debt of HMV, effectively giving it control and paving the way for a rescue of the entertainment retailer that fell into administration last week.

People familiar with the situation said Hilco had acquired the debt from the group’s lenders, Lloyds and Royal Bank of Scotland for about £40m.

HMV had underlying net debt of £176m as at the end of October, although people familiar with the matter said this had fallen to about £120m following the crucial Christmas and new year trading period.

Although Hilco has not acquired HMV, it means Hilco can effectively take control of the retailer, and any rival bidder would need its agreement.

Hilco declined to comment. People close to the situation said the move brought stability to HMV and meant that Hilco could work with administrator Deloitte on the best way to take the business forward.

“It takes the panic out of the situation,” said one.

Nick Edwards, joint administrator and a partner at Deloitte, said: “Following the news earlier today of Hilco’s acquisition of HMV’s secured debt, the administrators will work closely with them, as secured lender, as we continue to seek a positive outcome for the business. Stores continue to trade and at this time we remain hopeful of securing a long-term future for HMV as a going concern.”

But analysts and restructuring experts expect the outcome to be a slimmer chain, with some store closures.

Nick Bubb, the independent retail analyst, estimated that HMV could emerge with between 100 and 150 stores, against about 230 now.

Trevor Moore, chief executive of HMV, said last week that the chain had stores on 142 of Britain’s top 150 high streets.

In a grim week for the high street, HMV plunged into administration last week, threatening 4,000 jobs, after banks and suppliers refused to provide extra funding.

Hilco was already in pole position to acquire HMV, having been appointed on Monday to advise Deloitte on running the company in administration.

Restructuring experts said Hilco had strong support from the music and film suppliers, given that it already owns HMV Canada.

As well as Hilco, about 50 parties have expressed an interest in HMV to Deloitte, including trade buyers and private equity groups.

Game Retail, the entertainment retailer bought out of administration last year by OpCapita, the owner of Comet, is interested in acquiring about 45 HMV stores.

Better Capital, the buy-out group run by private equity veteran Jon Moulton, and Endless, an investment firm focusing on distressed companies, are also interested in all or part of HMV. Peter Dubens, whose Oakley Capital owns part of Time Out, is also watching developments closely.

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