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Terra Firma’s latest EMI debt proposals knocked back
By CMU Editorial | Published on Monday 16 November 2009
Citigroup has reportedly rejected Terra Firma’s latest proposals to restructure the finances of EMI. As much previously reported, private equity firm Terra Firma bought the London-based music major with a big fat loan from the American bank just before the pesky credit crunch. Citigroup intended to share the risk of the big lend by selling on a big chunk of the debt to other money lenders, but as the credit crunch, well, crunched, the market for such risk sharing disappeared.
And even as that market recovers, with EMI still struggling, despite a radical overhaul by its new owners, and with Terra Firma themselves admitting their biggest acquisition gamble to date was, with hindsight, something of a mistake, few are going to want to share Citigroup’s burden.
With EMI saddled with loan repayment commitments it can barely afford to meet, and Terra Firma preferring to not have to keep injecting new money into the firm in order to help it meet those loan repayments, the private equity types have been busy negotiating with Citigroup in a bid to restructure the music major’s debts.
I’m not 100% certain how such negotiations work, but I think the basic gist is that, on the basis neither Terra Firma nor Citigroup can really afford to let EMI collapse (some argue Citigroup have more to lose) the former is trying to talk the latter into writing off some of the music firm’s debts. To sweeten the deal, Terra Firma is proposing to increase its investment commitments to EMI, to convince Citigroup it still thinks EMI is a goer, and will therefore be able to meet those debt commitments that remain.
According to the Wall Street Journal, the latest proposal was that Terra Firma inject another billion pounds into EMI, in return for which Citigroup would write off debts of a similar sum, what would amount to about 40% of EMI’s debt commitments to the bank. The bankers though, it seems, were not willing to play ball.
In some ways Terra Firma’s position is weakened because, while some say Citigroup have more to lose if EMI folds, others argue otherwise. They argue that EMI’s catalogues, and especially EMI Music Publishing’s songs catalogue, is much more valuable than the music major is as a going concern. That’s not to say Citigroup want EMI to fail, but perhaps it’s Terra Firma who would have more to lose if the music company were to collapse.
Whatever, insiders say that Terra Firma have a bit more time to play with in their ongoing Citigroup negotiations, because this Autumn’s Beatles reissue programme has buoyed the major’s recorded music division, where all the losses are made, and the new Robbie long player could mean another couple of rosy months are ahead. The result of that is that EMI Music can just about survive for the time being without a dramatic cash injection from Terra Firma or loan rearrangement from Citigroup.
But insiders also say that, with EMI Music still reliant on a handful of often reluctant artist partners for much of its income, it will need more than Fab Four and Robbie income to make it through 2010. Therefore Terra Firma really do need Citigroup to give a little if it is to achieve its ambitions to eventually turn a profit on its EMI adventure. If no such deal can be struck in the first half of 2010, perhaps it will be time for Terra Firma to bail – meaning Warner Music may, as yet, acquire its rival at a bargain basement price.
