EMI Faces Tough Talks
Terra Firma chairman Guy Hands may need all his powers of persuasion if he’s to convince Citigroup to restructure the £2.5 billion ($4.05 billion) loan his company took out to buy EMI.
He is in what Bruno Saelzer, chairman of luxury design label Escada, described as a “difficult situation” in an interview with German weekly Welt Am Sonntag. That was just before Citi pushed his company nearer to the brink of insolvency by refusing to restructure its debt.
The omens aren’t good for Hands, who recently told a Dow Jones private equity conference that his negotiations with EMI’s bankers are continuing in a “gentlemanly” manner. The New York Post reported that designer fashion giant Valentino, which owes $3.5 billion to Citigroup, is also finding the U.S. bank can be intransigent when it comes to restructuring.
Citigroup, which has already tried to hive off some of EMI’s debt to secondary investors but couldn’t get any takers, is getting a reputation for being hard-nosed with corporate borrowers.
“Negotiations with one’s bankers, when the debt is so large in relation to the earnings, are always difficult,” says Hands, who reportedly offered to put in another £330 million worth of Terra Firma cash in a bid to mollify the money men.
Part of the EMI loan reportedly requires the music division’s cash flow to rise relative to its debt. Since last September, however, EMI has failed to hit its required target three times and Terra Firma has had to put more money in the business to comply with its banking covenants.
If it were to put in any more it would be close to having more than 30 percent of its equity cash in the EMI basket, which would breach its contract with its investors.