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Terra Firma seek information about Citigroup’s repossession of EMI

By | Published on Thursday 8 September 2011

EMI

Ah, Guy Hands, remember him? What fun we had. Mr Private Equity. Master Terra Firma. The Biscuit Guy. Or, possibly, to some of those who worked at EMI while his company was in charge, “that cunt”.

Yes, Hands and his Terra Firma dudes are back on the music news agenda because of a procedural hearing in the High Court this week in which the private equity firm sought information from accountants PricewaterhouseCoopers about the way in which Citigroup seized ownership of EMI in February.

As much previously reported, Terra Firma bought EMI in 2007 using a mega-bucks loan from Citigroup. But, after the economy collapsed, the major struggled to meet the terms of that loan, and frequently needed cash injections from Terra Firma and its investors so as not to default.

There were reports that some of Hands’ backers wanted to cut their losses on EMI rather than to keep on piling in more cash, especially once Terra Firma and Citigroup were caught up in a highly public legal battle about the events that led up to the purchase of the music firm in the first place, a legal squabble which meant, if nothing else, Citi was unlikely to renegotiate the terms of the EMI loan.

But Hands did manage to keep on finding just enough money to keep the bankers away from the door. Until in February, when it was suddenly announced that the directors of the holding company through which Terra Firma owned EMI had called in the administrators, who had decided that EMI and its parent company could no longer support the Citigroup debt, and therefore the parent company should be shut down and ownership of the music major be transfered to the bank.

Although in some ways repossession had been a long-time coming, and there had been wide speculation that the major would fail loan covenant tests in the Spring, and rumours that Hands was looking to offload EMI anyway, that Citigroup took ownership of the music firm overnight in early February took many by surprise. Not least, according to various reports, the top team at Terra Firma.

According to The Guardian, in this week’s court hearing Terra Firma’s lawyers asked PWC – the administrators called in by the EMI parent company’s board – to provide more information regards the grounds on which they deemed that the music firm’s parent company, even with Terra Firma’s support, could no longer support the Citigroup debt. They also wanted more information on the valuation the accountants gave EMI when handing ownership over to the US bank.

The Guardian cites an unnamed source as saying that Hands believes that, while there was wide speculation a breach of loan terms was imminent, at the moment Citigroup took control of EMI the terms of the music firm’s loan had all been met.

It’s possible Terra Firma believe they were the victims of a conspiracy planned by senior EMI executives, Citigroup bankers and, possibly, even reps at PWC, to abruptly cut them out of the equation regarding the future of the music firm. Either way, presumably Terra Firma are seeking this information to see whether there are grounds for legal action over the way Citigroup took over EMI.

Neither Terra Firma, Citigroup nor EMI have commented on this week’s court proceedings. Citigroup, of course, is currently in the process of selling EMI. According to other reports, the bank will be telling all serious bidders that they will provide indemnity as part of any takeover deal to ensure that, should Citigroup’s repossession of the music company become the subject of a court battle with Terra Firma, any new owners will not be impacted.



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