Virgin veers away from risk as Zavvi sales help pay #40m debt.

Virgin in clear as Zavvi raises #20m to meet EUK debt

By Robert Ashton

Virgin Group's exposure to the Zavvi collapse is now nil, following a "good post-Christmas sale" period by the music retailer.

Virgin had financially backed the supply agreement between distribution group EUK and (Zavvi forerunner) Virgin Megastore, part of the Virgin Group, and that agreement continued following the management buyout that created Zavvi in September 2007.

With the music retailer falling into administration on Christmas Eve - largely blamed on the earlier collapse of its main supplier EUK - it looked likely that the Virgin Group, which also owns the leases on seven Zavvi stores, might be financially exposed.

EUK administrator Deloitte calculated it was owed in the region of #80m by Zavvi. However, in a deal cut between Deloitte and Zavvi administrator Ernst & Young, only #40m was demanded from the retailer.

Zavvi was able to make up a large bulk of that - some #20m - from cash inside the business, with the remainder being raised from the sale of stock over the festive period. According to a Virgin spokesman, if Zavvi had fallen short of the rest of the #20m, Virgin would have been liable to make up the rest of the payment.