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HMV Drops as Suppliers’ Credit Insurance Cover Cut

HMV Group Plc, the U.K.’s biggest music and DVD retailer, fell 2.9 percent in London trading after saying some suppliers have had their credit insurance levels reduced.

HMV has “excellent relations” with suppliers and has no trouble obtaining merchandise, the Maidenhead, England-based company said in a statement on Regulatory News Service.

Sales at stores open at least a year fell 14 percent in the holiday trading period, HMV said Jan. 5, adding that a test in April of bank covenants would be “tight.” Credit insurers seek to protect wholesale merchants against risk of non-payment by retailers, and suppliers could demand tougher terms from the retailer to compensate.

“Credit insurers are reviewing the level of cover they provide on the group,” HMV said in today’s. “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.”

HMV declined 0.75 pence to 25.5 pence at the 4:30 p.m. close in London, after earlier falling to 22.75 pence, the lowest level since the retailer’s 2002 initial public offering.

The British Broadcasting Corp. yesterday cited an e-mail attributed to a credit executive at the U.K. arm of an unidentified U.K. CD and DVD manufacturer and distributor that said insurers had “significantly reduced” limits on HMV units to a level that wouldn’t support any sales on an insured basis.

Suppliers may provide a measure of support, since HMV is the “last significant entertainment specialist on the High Street,” wrote John Stevenson, an analyst with Peel Hunt who has a “hold” recommendation on HMV.

Still, “we believe there will be increased pressure on HMV to move quickly to secure its financial position, whether in terms of financing and its covenant requirements or other means in order to underpin supplier and investor confidence,” he wrote.

To contact the reporter on this story: David Altaner in London at daltaner@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge in London at Ckeatinge@bloomberg.net

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