Citigroup may be forced to take control of EMI if it can’t reach a financial restructuring agreement on the UK record label’s debt mountain, according to the Daily Telegraph.
The UK’s leading business papers carried stories saying Citigroup has turned down Terra Firma chief Guy Hands’ plan to inject another £1 billion ($1.66 billion) into EMI in return for the bank writing off the equivalent on its £2.6 billion ($4.4 billion) debt.
EMI released a statement confirming it had “made an offer involving the injection of £1 billion into EMI to resolve its capital issues.”
The UK’s only remaining major label has already been responsible for much of Terra Firma’s euro 1.37 billion ($2.3 billion) writedowns this year and it’s twice had to put money into the company to steady the ship.
“Negotiations with one’s bankers, when the debt is so large in relation to the earnings, are always difficult,” Hands told a Dow Jones private equity conference Sept. 16.
At that stage, he was reportedly offering to put in a further £330 million worth of Terra Firma cash in a bid to mollify the money men.
The Wall Street Journal reported the UK-based private equity firm is withdrawing about 10 of its Terra Firma execs who run EMI on a day-to-day basis, having concluded there’s little chance of getting back most of its money on the investment without more restructuring.
Terra Firma reported has about 40 execs working at the music company and feels some of them may be able to generate more value at other companies in the equity house’s portfolio.
Media speculation suggests Citigroup may be more receptive toward the idea of writing off debt if EMI was offering an equity stake in the company.
It’s in the bank’s interests to reach a deal rather than take over the company, as it’s unlikely to be able to sell it for the £2.5 billion it lent toward Terra Firma buying it.
Citigroup’s still reportedly trying to hive off part of the £2.6 million EMI loan. It made an earlier attempt to shift part of the liability in the summer but found no takers.
There’s no clue as to how long EMI and Citigroup can take over finding common ground, but failure to reach an agreement must eventually mean the music giant would effectively fall into the bank’s control.