Entertainment retailer HMV is in crunch talks with its lenders as it attempts to avoid falling into the hands of its banks.

If it fails a crucial financial health check on its banking covenants later this month, which will assess the level of debt to earnings, its banks could take control.

The retailer has a debt mountain of £176.1m and a syndicate of eight banks, which is believed to include Royal Bank of Scotland and Lloyds, according to the Daily Mail.

Before Christmas the retailer warned it would likely breach banking covenants in January.

Lenders to HMV have been attempting to stop Apollo Global Management from buying the retailer’s debt and taking control of the company, believing the retailer can survive without being taken over. Apollo already has 10% of HMV’s debt.

Shares in the retailer slumped a further 10% on Wednesday, as figures from the British Phonographic Industry showed sales of physical CDs fell by a fifth last year, and are half what they were in 2008.

Meanwhile, the Entertainment Retailers Association said that digital sales in 2012 broke through the £1bn mark.

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