EMI Has Breathing Space

Having raised the £105 million it needed to avoid defaulting on its debt to Citigroup, EMI has at least created a breathing space in which to sort out its longer-term future.

The U.S. bank has yet to receive the cash, but Terra Firma, which bought the UK music company for £4.2 billion in 2007, is expected to make the payment before the June 14 deadline.

The focus now shifts to whether Terra Firma founder Guy Hands can raise a further £255 million to help EMI to meet its covenants up to March 2015 or even persuade the bank to agree a restructuring of its £3.2 billion debt.

Citigroup has so far held out against reducing the debt load unless it got equity in return, although even that deal may no longer be on the table as EMI equity is now close to being worthless.

The situation is made worse by the fact Hands is taking legal action against Citigroup, claiming it misled him into paying too much for EMI in the first place. The case is expected to go to trial in New York Oct. 18.

Another problem for the beleaguered British label is that it may need to find yet another £250 million, as The Pensions Regulator will likely ask it to cough up that amount to plug a gap in its pension scheme.

EMI’s options for trying to raise cash include renewing talks on a distribution deal for EMI’s U.S. recorded music business, which it discussed with Vivendi’s Universal Music and Sony Music earlier this year.

German media giant Bertelsmann and U.S. private equity house Kohlberg Kravis Roberts are both reportedly interested in EMI’s publishing business.

Edgar Bronfman Jr.’s Warner Music Group has been viewed as a likely candidate to buy much of EMI, but has been waiting in the wings until the company stumbles and can be picked up on the cheap.