Amid an exodus of artists and execs, the management team at EMI Group is making what many see as a final attempt to secure additional investment from private equity owners Terra Firma this month to stave off repossession by Citigroup. The banking group loaned Terra Firma $3.8 billion to buy EMI in 2007, but despite massive cost cuts and a reorganization that is now generating improved profits, EMI was in breach of banking covenants in March and, according to insiders, will also breach covenants in June and September.
“If interest payments are being met but covenants are not, it is normal for the lender to renegotiate the loan conditions. However, Citigroup has remained silent on its intentions," says one source familiar with EMI's loan arrangements.
That relationship has been complicated by Terra Firma chairman Guy Hands' December lawsuit charging the bankers with deliberately inflating the price for EMI by falsely claiming other parties were interested in a takeover at the time Terra Firma bought the music giant. Citigroup denies the allegations.
The case is expected to be heard in September, but it's uncertain whether EMI will still exist as a stand-alone company by then. The music conglom has debts of about $4 billion and must persuade investors to put up $184.5 million by June if it is to avoid breaching its banking covenants.
Meanwhile, the storied company has been hit by a spate of unfavorable PR: Radiohead, the Rolling Stones and Paul McCartney severed decades-long relationships; a recent courtroom ruling in favor of Pink Floyd over royalties also brought a black eye; and while historic preservationists stepped in to save EMI-owned Abbey Road Studios from being sold to commercial developers, the episode's fallout highlighted the company's financial woes.
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