Report: Terra Firma Working To Prevent EMI Default

NEW YORK, (Reuters) – Guy Hands’ private equity firm Terra Firma Capital Partners, the owner of EMI Group, is working to prevent a loan agreement default at the company’s recorded music unit, the Wall Street Journal reported.

Terra Firma acquired EMI for 4 billion pounds, including 1.4 billion in cash from investors and a 2.6 billion pound loan from Citigroup but has since written down much of the value of the investment and injected extra cash, the Journal said.

Now the recorded music unit, EMI Music — once home to Rolling Stones and Radiohead, needs more cash injections over the next eight months to avoid a loan default as the unit is not generating enough profit to comply with the requirements for a 950 million pounds loan from Citigroup, according to the report, which cites unnamed people familiar with the situation.

Representatives for EMI, Citigroup, Terra Firma and Blackstone were not immediately available to comment on the report.

The loan from Citigroup includes certain requirements for the ratio of debt to earnings before interest, tax, depreciation, and amortization but EMI Music has failed three covenant tests since September, the Journal reported.

Blackstone Group LP is helping Terra Firma negotiate with Citigroup to try to restructure EMI’s debt, the report said.

Earlier this year, Hands asked J.P. Morgan Chase & Co. to see if it was possible to raise money on the junk-bond market to pay off part of a Citigroup loan used for the acquisition, according to the report, citing an unnamed person.

The Journal also noted that another key unit EMI Music Publishing, which sells rights to perform songs or use lyrics, is still healthy and will not need to make extra interest payments if EMI Music defaults. (Reporting by Sinead Carew; Editing by Jeremy Laurence)