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Terra Firma may have to inject additional cash into EMI to avoid default on a $4 billion loan from Citigroup.
CLOCK IS TICKING FOR HANDS, EMI
Terra Firma Chief May Have to Inject More Cash Into EMI to Keep It From Defaulting, Says WSJ
The worldwide credit meltdown is weighing heavily on Guy Hands and EMI, according to a report published today in the Wall Street Journal. The beleaguered British company has until March to generate enough cash to satisfy its banker, Citigroup, and there’s no potential blockbuster on the release schedule to help EMI accomplish that daunting task.

The predicament puts a lot of pressure on Keith Urban and Lily Allen, whose upcoming albums appear to have the biggest commercial upside of any EMI releases scheduled for the first three months of next year. Allen’s second album, It's Not Me, It's You, follows up her 2006 worldwide hit Alright, Still. EMI's all-important Q4 rollout features a new release from Coldplay, but Prospekt March is merely an adjunct to the big-selling Viva La Vida, not a proper follow-up.

This would be a handy time for the Beatles to make their catalog available online, to say the least, but Paul McCartney last week said that talks between Apple Corps and EMI about making that happen had hit a snag, so it appears that big event will probably go down in time to help the cash-strapped company from either a financial or a P.R. standpoint.

Terra Firma may have to inject additional cash into EMI to avoid default on a loan from Citigroup, people familiar with the situation told WSJ reporters Aaron Patrick and Dana Cimilluca. Citigroup has about £2.7 billion ($4 billion) in loans to EMI. Three months ago, Terra Firma put in about £10 million to keep EMI from defaulting on its loan, a person familiar with the situation said. It's unclear how much a new injection might be.

Hands’ private-equity firm raised £250 million last year for contingencies, which would be used if an injection of funds is necessary, people familiar with the matter said.

Meanwhile, in a sign that the market increasingly thinks EMI could default on its loans, the price of insuring against a default by EMI is rising. It currently costs £931k to insure £10 million of EMI debt, up from £868k a month ago, according to data provider Markit.

That said, EMI's internal forecasts are that it will generate enough cash. EMI expects to generate £280 million in EBITDA for its fiscal year, ending March 30, a person familiar with the matter said. If it meets this target, Terra Firma will likely avoid having to inject more cash into the business.

EMI's finances have improved in recent quarters as the company has shipped smaller initial numbers and cut down on returns, people familiar with the matter said. And EMI Music Publishing continues to be among the most profitable operations in that part of the business.

Terra Firma has already written down its investment in EMI to 70 cents on the dollar. Citigroup, under pressure to reduce its own debt, considered trying to offload the bonds this quarter or in the first quarter of next year, but decided against it, not wanting to sell at fire-sale prices, a person familiar with the matter told the WSJ.

EMI could raise more money by selling assets. EMI executives contacted at least two other music companies several months ago to discuss the possible sale of Angel and Blue Note, people familiar with the situation said. The discussions petered out after an EMI executive heading the negotiations was moved to another role, the sources added, but the identity of that person was not revealed to the reporters.

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