Hilco Buys HMV Debt, Gains Control of Struggling UK Music Retailer

Hilco U.K. has acquired HMV's debt, effectively placing the retail restructuring group in control of the troubled U.K. retailer, according to reports. Although Hilco does not yet officially own HMV, the debt deal gives it effective control of the music and DVD chain.

The Financial Times reports that Hilco has acquired HMV existing debt from its lenders, Lloyds and the Royal Bank of Scotland. HMV Group's underlying net debt stood at £176.1 million ($285.4 million), according to December 2012's Interim Results.

While a source close to the deal confirmed to Billboard.biz that Hilco has acquired HMV's debt and is working alongside its administrators in reviewing and assessing the retailer's options going forward, spokespersons for Hilco U.K. and HMV's administrators Deloitte LLP did not return requests for comment.

The FT quotes an insider familiar with the deal as saying, "It takes the panic out of the situation." It is understood that Hilco U.K. will now partner administrator Deloitte in taking the business forward. 

As previously reported, HMV suspended the trading of its shares and entered administration, the U.K. equivalent of Chapter 11 bank protection, Jan. 14. The retailer currently has 223 U.K. stores, including 9 Fopp outlets, open for trading. On Jan. 16, HMV closed its 16 stores located in the Republic of Ireland, leading to temporary staff sit-in protests over unpaid wages.

Hilco U.K. was one of 50 parties reportedly interested in acquiring HMV, according to sources close to the situation. The news that it has now acquired HMV's underlying net debt is likely to be welcomed by U.K. music execs, who was were believed to strongly favor the group's bid due to its previously successful turnaround of HMV Canada.

Hilco bought HMV Canada, then comprising of 121 stores, for £2 million ($3.2 million) in 2011. Following its acquisition, the company provided HMV Canada with CAD $26 million ($26.1 million) working capital facility to allow the business to trade through its then approaching peak holiday period. At the time of Hilco's purchase, HMV Canada, like its U.K. counterpart, was suffering from declining performance, reduced footfall and increased competition from digital services.

According to Hilco U.K.'s official website, the company's operational team was able to arrest HMV Canada's poor performance and reverse sales declines through a combination of "moving away from multi-buy promotions to single price points, emphasizing everyday low prices" and "additional weekend promotional campaigns." Hilco claims that this strategy, combined with additional financial capital resulted in store traffic being converted from "double digit year-on-year declines to year-on-year growth and has led to significant increases in sales trends." It adds that the "support of Hilco has ensured that approximately 1,500 jobs have been preserved and Canada's last remaining specialist entertainment retailer continues to trade."

According to HMV Canada's website, there are currently 116 HMV retail outlets located in the country.