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Terra Firma faces the music with £300m cure

Guy Hands’ firm is in discussions with Citi about restructuring the $5.5bn debt burden weighing on EMI. The music group – home to such stars as Coldplay and REM – accounts for 30% of Terra Firma’s two latest buyout funds.

Terra Firma, the UK buyout house run by Guy Hands, is entering negotiations with Citigroup – lenders to music publisher and Terra Firma portfolio company EMI – to restructure the music group’s $5.5 billion in debt, a source close to the situation has confirmed.

A formal proposal has not yet been made by the buyout house, but Terra Firma is offering to inject £300 million (€347 million; $483 million) of fresh equity into the business in exchange for a write-down in the music group’s debt.

Terra Firma de-listed EMI in 2007 in what has become one of the UK’s highest profile buyouts of the credit boom era. At the time Citigroup provided $5.5 billion in debt for the acquisition, which, amid the escalating financial crisis, it was unable to syndicate out.

The buyout house has written to investors in its third fund to ask permission to inject the additional equity into EMI. For the “equity cure” to go ahead, 75 percent of investors must give their consent.

EMI, which represents artists such as Coldplay, Gorillaz and REM, has been the subject of a dramatic cost-cutting drive and operational restructuring since Terra Firma took over.

The business has seen some high profile departures in the last twelve months. In 2008, chief executive Eric Nicoli and chief financial officer Martin Stewart resigned from the business and were soon followed by chairman and chief executive Tony Wadsworth. Chris Roling and Ashley Unwin, two Terra Firma executives who were installed in EMI’s senior management team, also left the firm.

The difficulties with the deal were highlighted in March, when Terra Firma revealed it had written down its equity stake in EMI by half.

EMI accounts for around 30 percent of Terra Firma’s last two buyout funds.

In March Terra Firma’s founder Guy Hands shifted his role from chief executive officer of the firm to become group chairman and chief investment officer, focusing more of his time on investor relations and investment activity and less on managing the business.