HMV, the financially-troubled London-listed entertainment retailer, announced last week that it intends to grant “warrants representing 2.5% of its equity” to its key music and film suppliers. The terms of these warrants were not disclosed, but the warrants will presumably be exercisable at the same price, or a discount to, HMV’s share price at the date of grant.
This grant of warrants gives HMV’s suppliers an interest in helping HMV survive (and could be seen as a rather circular form of credit insurance). As the HMV announcement refers to the warrants being part of “a change in the nature of HMV’s relationships with its key music and film suppliers”, presumably HMV has received a quid pro quo from its suppliers in return for the warrants – longer payment terms and/or reduced supplier margins.
As the HMV announcement makes clear, this new relationship with its suppliers has been integral to HMV’s lending syndicate agreeing to relax the covenant package on its existing borrowings, including the waiver of an imminent covenant test. Other retailers in financial difficulty may well try this grant of equity options in an attempt to keep key suppliers – and lenders – on side.
Friendly Corporate PSL
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