Guy Holds Up His Hands

Guy Hands has said his Terra Firma private equity firm paid “too much money” for EMI and probably wouldn’t have bought it at all if he had another couple of weeks to think about it.

“If the EMI auction started two weeks later, it wouldn’t have occurred. We wouldn’t have bought it. We’d have 90 percent of our funds still to invest and we’d look like geniuses,” he told a Dow Jones private equity conference Sept. 16.

The former Terra Firma chairman and chief exec, who relinquished control to focus on investors and investments, said that now the main battle is to negotiate easier terms on the British label’s debt.

Terra Firma paid £3.2 billion (then $6.7 billion) to buy EMI in May 2007, just before the buyout bubble burst. Citibank lent most of the money.

Hands said debt negotiations with Citibank are continuing in a “gentlemanly” fashion, although he appeared less than confident over the outcome.

“Will we get to a solution that’s a win-win for all stakeholders? I don’t know, but I certainly know there’s desire from all parties to do it,” he said at the Dow Jones meeting.

Terra Firma has improved results at EMI, boosting the recorded music division’s annual earnings from £50 million ($81.1 million) per year to £160 million ($259.5 million).

However, the struggling music group accounted for the vast majority of Terra Firma’s euro 1.37 billion ($2.2 billion) writedowns this year and it’s twice had to put money into the company to steady the ship.

Citi, which arranged £2.5 billion ($4.05 billion) worth of the money that Terra Firma borrowed to buy EMI, has since had chairman and chief exec Charles “Chuck” Prince resign on the back of news that the bank had written down $17 billion on leveraged and sub-prime loans in the previous six months.

The debt is said to be costing EMI 10 percent per annum, much higher than the 6 percent it originally expected, costing it about £300 million ($486.5 million) per year.

The recorded music division alone isn’t making that much in a year. When the publishing section’s profits are also used to fill the hole, it doesn’t leave very much to run and grow the company.

Another financial burden is the cost of the cuts and restructuring that have been needed to slash the company’s outgoings.

Terra Firma has reportedly offered to put in another £330 million ($535.3 million) worth of equity, in addition to the £84 million it put in at the end of January, to persuade Citibank to agree to a restructuring of the debt.

In May, the private equity company wrote down the book value of EMI by a little more than half and poured in a further £28 million to avoid it breaching its bank covenants.

Citi has already tried to hive off some of the debt to secondary investors, but couldn’t get any takers in the current economic climate.

EMI’s improved performance may make it harder to convince Citibank of the urgency of restructuring the company or the debt repayment.