EMI has finally been wrested from Guy Hands’ control, its lender Citigroup taking over in one of the most anticipated debt-for-equity swaps in private equity.
Citi has recapitalised the embattled music group, dramatically reducing its unmanageable debt by 65 per cent from £3.4bn (€4bn) to £1.2bn. EMI also said that it has £300m in cash on hand.
The music group, bought out by Guy Hands’ private equity firm Terra Firma in 2007 for £4.2bn and using more than £3bn in debt from Citi, said the deal provides financial strength and flexibility.
PricewaterhouseCoopers were appointed as administrators and sold EMI, and dedicated holding company Maltby Acquisitions, to Citi.
“The recapitalisation of EMI by Citi is an extremely positive step for the company. It has given us one of the most robust balance sheets in the industry with a modest level of debt and substantial liquidity. With that solid footing, we are confident in our ability to drive our business forward,” said EMI chief executive Roger Faxon.
With EMI representing around a third of Terra Firma’s current fund, the loss will be a huge blow for the private equity firm.
Its future now looks uncertain as investors will be put off re-upping into a possible successor fund.
Hands has personally suffered from the loss, since two-thirds of the British financier's wealth was tied up in the record label – which counts The Beatles and Blur in its catalogue.
Terra Firma took on a huge challenge by acquiring EMI in the face of waning music sales, and just ahead of the credit crunch.
The buyout house has fought to stay in control of the business, injecting a further £105m in June 2010 to keep Citi from commandeering the asset.
In the year to March 2010, EMI's Ebitda crept up by as much as 14 per cent before restructuring costs.
However, despite improving the music group's profitability, Hands was unable to retain control of EMI as it failed to meet the huge debt burden imposed on it from its landmark LBO in 2007.
"Terra Firma is pleased that EMI’s debt burden has been reduced through Citi agreeing to write down a substantial proportion of EMI’s debt," said the firm in a statement.