Terra Firma Faces EMI Music

Terra Firma Capital Partners may need to inject further cash into UK music group EMI, which it took private in a €6.2bn (US$8bn) transaction in 2007, in order to avoid defaulting on a loan from Citigroup.

The Wall Street Journal reported that Terra Firma put £10m into EMI three months ago to avoid defaulting on its loan.

At the time of the transaction, Terra Firma said that Citigroup was putting £2.5bn of debt into the deal in addition to provisions for a £350m overdraft, although reports suggest that the bank has approximately £2.7bn of loans in EMI.

In May of this year, Terra Firma’s chief Guy Hands said that his firm was working hard to find ways to help Citigroup “syndicate or sell down this loan”.

Citigroup attempted to sell US$12bn of its portfolio of leveraged loans earlier in the year, although this did not include the EMI debt due to uncertainty about Terra Firma’s restructuring plans for EMI.

Deutsche Bank, which advised EMI in the original transaction, also attempted to sell down approximately US$9bn of leveraged loans at the time. According to market intelligence, both banks are expected to have cleared a significant chunk of the loans clogging up their balance sheet, EMI notwithstanding.

In order to satisfy Citigroup, Terra Firma may have to inject further financing, as well as push EMI to generate strong sales over a difficult Christmas period. Alternatively, asset sales could be on the cards, including the revival of the sales process of EMI’s classical and jazz labels.

The WSJ said that Terra Firma has already written down its investment to 70 cents on the dollar.

Last week, Terra Firma shed some of its senior executives working on EMI’s restructuring, including Chris Roling and Ashley Unwin.

By Robert Venes

Source: Thomson Merger News