UK- Terra Firma to inject a further £300m into EMI

The private equity firm is currently in discussions with EMI's lender, Citigroup, about a £300m cash injection into the company. In return, Terra Firma is attempting to negotiate that Citi write off about £500m of the debt from the label's recorded music division, as well as a new set of financing arrangements.

If the deal is agreed upon, it would mean that Terra Firma has injected nearly £500m of additional capital since it took over the company in 2007, in a deal valued at approximately £4bn. The buyout group put £1.7bn of equity into the original transaction, while Citi was left holding the entire debt package, as the downturn in the markets prevented the bank from selling it down.

It has been reported that Guy Hands, chairman of Terra Firma, believes that if Citi goes along with the proposal, it will have a better chance of syndicating EMI's debt, which is not due to mature until 2015.

EMI's problems have been concentrated in its recorded music division, where the debt reduction is due to take place. Terra Firma has cut approximately 2,000 jobs in the company. Since the buyout house took control of EMI, earnings before tax and interest have increased from £61m to £163m, but this is still £30m lower than Terra Firma had budgeted for in 2008.

In March, Terra Firma wrote down its investment in EMI by half, having spent £170m on restructuring and cash injections since 2007.

The restructuring proposal still needs the approval from Citi as well as 75% of Terra Firma's investors, as they must decide if they are willing to allow Hands to take £300m from the private equity firm's most recent EUR5.4bn fund, which has about EUR2.7bn left.

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