The British company, which is owned by financier Guy Hands’ Terra Firma private equity operation, was hit by a huge impairment charge of £1.03bn. It is understood two thirds of the damage came from EMI’s music publishing business, while the other third came from a decrease in the value of its back catalogue.
The writedown added up with restructuring costs of £136m and a £722m interest bill on its £2.6bn debt pile to push the firm into the red.
Before the exceptional charges, EMI produced operating revenue of £293m, up 80 per cent year-on-year.
Terra Firma will now be forced to go to its own investors to request a cash injection of up to £150m to save EMI from breaching its loan covenants. Unless the money can be found by the end of June, EMI’s lender – Citigroup – will have legal recourse to take over the company.
Even if it secures this equity, the accounts show that it will face another “significant shortfall” against a test on covenants in its loans by March 2011.
Last year, Citigroup rejected plans to swap £1bn of debt for a £1bn cash infusion from Terra Firma. The dispute culminated in a legal battle between Hands and David Wormsley, Citi’s top investment banker, whom Hands accuses of misleading him during the auction process in 2007.
In a further blow to Terra Firma, accounts soon to be filed with Companies House said EMI’s pension fund had a deficit of up to £200m. Terra Firma may have to tap its investors again to plug the gap. “There is no certainty that such funds will be available,” Terra Firma said.