Struggling entertainment retailer HMV's survival hopes were boosted Friday after it cut a deal with its banks that will see an imminent test of its lending rules waived.

The banks have agreed to waive the January 2012 covenant test and to re-set tests relating to the 12 month periods ending April and July 2012 with significantly enhanced headroom, the firm said.

HMV expects debt at its April 30 year end to be 175-180 million pounds and in expectation of continuing challenging conditions forecast a loss of about 10 million pounds.

The firm said its banking syndicate agreed to the amendments in response to a change in HMV's relationships with its key music and film suppliers.

These changes include the intended grant of warrants representing 2.5 percent of HMV'S equity to these suppliers, who include Vivendi owned Universal Music UK.

This will have a materially positive impact on the group's profitability and cash flow such that if current trading patterns continue, we now expect, on the basis of our current plans, to be able to reduce the group's net debt by approximately 50 percent over the next three years, said HMV.

It said this anticipated reduction in debt was before any assumed disposal proceeds from the ongoing review of the Live business.

Shares in HMV were up 104 percent at 4.895 pence at 1332, valuing the business at about 20 million pounds.

(Reporting by James Davey)