Universal Music-Led Suppliers Liable for Up to $242 Million If HMV Goes Under (Report)

UPDATED: Labels and studios have provided an estimated $65 million in financial support to the entertainment retailer, which faces a liquidity crunch.

British music and DVD retailer HMV, which has said it faces a liquidity crunch early in the new year, has seen $65 million in benefits from financial support from product suppliers, led by Universal Music, the Daily Telegraph reported Thursday.

Music labels and film studios have provided that amount (£40 million) in support to HMV over an unspecified period, the paper said. Among other things, the company has gotten greater access to back catalogs and is buying product stock on consignment, according to the report. That means HMV only has to pay for product that it actually sells. The paper didn't say how long the arrangements have been in place.

Citing sources, the Telegraph also reported that HMV is looking to strike deals with more partners in the new year and that its position is strengthened by the fact that big suppliers, led by Universal Music, would become liable for up to $242 million (£150 million) in obligations, if the entertainment retailer goes bankrupt.

The paper said that Universal Music, part of French media and telecom giant Vivendi, is, for example, liable for the rent paid for about 40 of the 238 HMV stores in the U.K., but it didn't detail how much of the potential total of $242 million this amounts to. A source said Universal Music budgeted for the financial risk as part of its purchase of the EMI recorded music business.

The store obligations were transferred when the music giant acquired the part of former HMV parent EMI earlier this year. EMI had guaranteed the HMV store rental agreements on when it spun off the retailer as a separate business in 1998.

The liabilities for all suppliers would only hit the full $242 million if HMV couldn't pay its bills, had to go under, and the stores couldn't find new tenants amid a challenging U.K. retail environment due to a continued weak economy, the paper said.

Even before the report on the rent guarantees, suppliers, led by music labels and film studios, had been seen as having a keen interest in keeping the retailer afloat amid continuing challenges to bricks-and-mortar stores. Suppliers already came out to support HMV last January with a deal that allowed the company to reduce part of its big debt burden.

Suppliers, as a group, have also taken a 5 percent stake in HMV after converting warrants as the company continues to discuss its financial situation with its banks, according to the Telegraph.

Earlier in December, HMV said current weak market conditions have resulted in "material uncertainties facing the business," with the company likely to breach its debt covenants at the end of January.

That could potentially lead to the company being forced into bankruptcy. However, the firm, which also reported a narrowed loss despite lower-than-expected revenue for its latest period, said it is in talks with its banks about a possible reprieve.

Universal Music declined to comment.

This year, HMV sold several of its live music assets to reduce its debt, including London's Hammersmith Apollo, Barfly and Jazz Cafe, as well as Manchester's The Ritz. 

New York investment group Apollo Global Management recently also bought a 10 percent stake in HMV. It is believed to be considering an acquisition of the whole company.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai