Terra Firma is writing down its investment in EMI by a huge 90% after the record label’s creditors turned down a deal to restructure its debt. Citigroup refused to write off GBP1bn (USD1.7bn) of EMI’s GBP2.6bn (USD4.4bn) loan in return for a GBP1bn (USD1.7bn) cash injection from Terra Firma chief Guy Hands.
Reports suggest Citigroup is not in principle against restructuring EMI’s debt, but sources say the proposed deal, which would leave Terra Firma with full equity in the business while Citigroup took another loss, was weighted too heavily in the investment group’s favour. “Citi is not unwilling to restructure. It is an argument over where value breaks and what a fair deal is,” one source tells the Wall Street Journal.
Terra Firma is reducing its management involvement in EMI following the failure to secure a deal. Around 10 Terra Firma executives will withdraw from day-to-day running of EMI, and the label’s own executives are expected to take control of the company by March.
Around 30% of Terra Firma’s EUR5.4bn (USD8.1bn) private equity fund is tied up in EMI, which Terra Firma bought for GBP4bn (USD6.7bn) just before the onset of the financial crisis. Hands said in September that if the deal talks had begun just weeks later he wouldn’t have bought the company. “We were just wrong by two weeks,” Hands told a September 17 conference sponsored by Dow Jones. “If we hadn’t done that, we’d have 90% of our funds still to invest and we’d look like complete geniuses.”