Credit insurance cut hits HMV

STRUGGLING music retailer HMV saw its shares retreat further yesterday as it confirmed that credit insurers have cut the cover they will give the group's suppliers.

The firm, which issued a profits warning earlier this month and revealed it was to close 60 stores, issued a statement saying: "In light of recent comment on credit insurance cover, HMV Group wishes to clarify that, following the peak trading period, credit insurers are reviewing the level of cover they provide on the group.

"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."

However, despite the company saying it continued to have excellent relations with its suppliers "and have had no difficulty in obtaining stock", shares in the group slumped 13 per cent to 22.75p before regaining ground to close at 25.5p, a fall of 2.9 per cent on the day.

Analysts said the market was unnerved by the news because the withdrawal of credit insurance, which covers suppliers who provide goods on credit to retailers, was a major blow to failed retailers such as Woolworths and Zavvi as they tried unsuccessfully to continue trading in the recession.

Sony's CD manufacturing division, DADC, has reportedly informed record label managers of a "quick and drastic reduction" in the credit insurance available to HMV suppliers.

The group, which is battling cut-price competition from supermarkets and music downloads, said earlier this month that meeting a test of its banking covenants in April would be "tight".