The Straw That Breaks EMI’s Back?

After raising hundreds of millions to meet the covenants on its loans with U.S. banker Citigroup, EMI may now be forced into administration by the hole in its pension fund.

The Pensions Regulator has been asked to decide on the funding of the main EMI pension scheme because the trustees and the company cannot agree. It’s the first time the regulator has been called in to decide just how much extra cash should be pumped into a company scheme to clear its deficit. In EMI’s case the shortfall is estimated to be between £115 million and £217 million.

The scheme currently has only 269 active members and was closed to new joiners in November 2005.

In its annual report, EMI hinted that too harsh a ruling from the regulator could tip the firm into insolvency and said “fundamental uncertainty” over the size of deficit threatens the company’s future.

“The outcome of the regulator’s determination could conceivably push the company into administration,” independent pensions expert John Ralfe told BBC News. He said it could be “the straw that breaks the camel’s back.”

EMI, the UK’s only remaining major music company, was subject to a leveraged buy-out by private equity firm Terra Firma in 2007. Terra Firma paid £4.2 billion, with three-quarters of that borrowed from Citigroup, and it’s already written off the investment.

Terra Firma chief Guy Hands is reportedly in mediation talks to settle his multi-million dollar claim against Citigroup before it reaches a New York court Oct. 18.
Hands claims Citi misled him during the bidding process for EMI. The US bank denies it.