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EMI might be in compliance when the next test comes, thanks in large part to the lift it's getting from its release of the remastered Beatles catalog—though it remains to be seen how long-lasting the effects of this cash infusion will be.
CITIGROUP PUTTING THE SQUEEZE ON TERRA FIRMA—REPORT
Lender Pushing Hard to Rid Itself of Troubled Loans, Possibly Including the One That Enabled Guy Hands to Buy EMI
Citigroup could be about to provide living proof of Guy Hands’ recent statement that "Negotiations with one's bankers, when the debt is so large in relation to the earnings, are always difficult."

The lender may not agree to Terra Firma’s request for a restructuring of the loan that enabled Hands’ company to buy EMI for $4.73 billion in 2007, the N.Y. Post reported this morning. Citi has been trying to rid itself of troubled loans—sometimes by forcing companies into bankruptcy—in an apparent attempt to reduce the size of its balance sheet, people familiar with the bank's actions told reporter Josh Kosman.

These sources said the bank has put the brakes on attempts by some of its corporate debtors to restructure, pushed German designer Escada into insolvency despite other lenders' willingness to go along with the plan, and is reportedly pushing hard to get repayment from fashion house Valentino which owes Citi $3.5 billion. A Citigroup spokeswoman declined to comment.

Hands’ buyer’s remorse—evidenced in his recent admission that he wouldn’t have bought EMI had the auction taken place two weeks later—subsequently said he won’t need additional loans and a debt restructuring to pay back the Citi loan. But the Post story suggests those negotiations are ongoing.

As you’ll undoubtedly recall, the economic crisis hit right after the acquisition, rendering Terra Firma’s much-criticized move into the depressed music business an unmitigated disaster. Unable to resell the loan, Citi now holds the entire amount on its balance sheet.

A piece of the loan reportedly requires EMI's cash flow to rise relative to its debt. Since last September, however, EMI has failed to hit its required target three times, and Terra Firma has had to put more money in the business to keep it in compliance.

But Terra Firma can't inject more cash into EMI from its buyout fund without committing more than 30% of fund money in the company. Exceeding that threshold would be a breach of its contract with firm investors, a source with direct knowledge of the situation told Kosman.

But EMI might be in compliance when the next test comes, thanks in large part to the lift it's getting from its release of the remastered Beatles catalog—though it remains to be seen how long-lasting the effects of this cash infusion will be. The initial sales explosion spiked EMI’s overall marketshare from 7.8% to 17.8%.

But Hands’ continuing predicament lends credence to reports that he’s considering selling EMI Music Publishing to KKR/Bertelsmann. Such a move would bring in much-needed cash while also easing the path through regulatory should he then opt to sell EMI’s recorded music assets to WMG.

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