HMV faces credit crisis

HMV shares have hit their lowest point as the entertainment chain revealed that its credit insurers are reducing the level of cover they provide the group.

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The cuts mean that some of HMV’s suppliers can no longer insure themselves against losses if HMV collapses. If this were to happen, suppliers would suffer significant financial losses if HMV could not pay its bills.

It could also see HMV struggle to obtain stock.

Similar reductions of credit insurance played a part in the collapse of high street chains Zavvi and Woolworths.

In a statement, HMV says: “Whilst this has resulted in the reduction in the availability of credit insurance to certain of the Company’s suppliers, our business remains a core channel to market for them.

“We continue to maintain excellent relations with our suppliers and have had no difficulty in obtaining stock.”

The entertainment group, which also owns Waterstone’s, issued a profit warning earlier this month following lower than expected Christmas sales.

Chief executive Simon Fox, said at the time that HMV remained “profitable and cash-generative”.

It also announced that it will close 60 stores this year in a bid to raise cash and a further £10m of cost cutting.

HMV is diversifying its business model and moving into complementary entertainment sectors such as live events, festivals, ticketing, digital downloads and cinema, as part of its efforts to become a “broad-based entertainment brand”.

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