EMI May Need More Funds To Deal with Debt

(Reuters) – EMI’s parent company said on Wednesday further equity injections may be needed, particularly in 2011, as the music group continues to struggle under the weight of its debt in spite of an improved trading performance.

The music business, controlled by Guy Hands’s buyout firm, Terra Firma [TERA.UL], generates enough cash to cover interest payments on its 3 billion pound ($4.69 billion) debt burden, Maltby Capital said in its annual report.

However, it needs to address banking covenants that will tighten steadily over the coming years.

Terra Firma has been fighting to keep the business acquired at the height of the credit boom out of the clutches of lender Citigroup (C.N) after breaching the terms on its debt.

The buyout firm raised 105 million pounds from investors earlier this year to put EMI within its banking agreements until March 2011. [ID:nLDE64A1P9]

Maltby said it is likely there will be a “further significant shortfall” when EMI covenants are tested in March 2011, which could substantially exceed the cash needed this year.

EMI, led by recently appointed group Chief Executive Roger Faxon, is exploring various strategic options for the business which are expected to reduce the level of new equity, the group said.

Terra Firma had signalled it could tap investors for a total of 360 million pounds to meet future covenant breaches until the loans mature.

EMI pretax profits, after restructuring charges but before impairment charges on goodwill and intangible assets, were 121 million pounds for the year to end-March 2010, compared with just 7 million pounds the previous year. Revenues were up to 1.65 billion pounds from 1.56 billion pounds in 2009.

The group posted a total loss of 512 million pounds, compared with 1.57 billion last year, after impairment charges of 602 million pounds, due in part to lower growth expectations for digital and online music.

EMI’s improving performance followed success with the release of the re-mastered Beatles catalogue, which sold over 13 million albums, as well as with newer artists such as Katy Perry, who has sold around six million albums.

Country group Lady Antebellum is the top seller of the year in the United States.

The chart success helped EMI Music, which owns such labels as Parlophone and Capitol, to post a rise in core earnings of 15 percent to 184 million pounds due to a larger share of the global recorded music market.

EMI Music Publishing, which owns the rights to such music as “New York, New York” and “Bohemian Rhapsody”, posted core earnings up almost 13 percent to 150 million pounds.

Songwriters and publishers signed to the Publishing division are paid every time a piece of music is used commercially. ($1=.6401 Pound)

By Simon Meads and Kate Holton
(Editing by Hans Peters and Simon Jessop)