EMI is confident private equity investor Terra Firma will pump a further £100m or so into the business next March to help it avoid a breach of its loan covenants, it is understood.
Maltby Capital, EMI’s holding company, is expected to require an equity cure “substantially in excess” of the £87.5m injected this year when the first quarter of 2011 closes. Guy Hands, Terra Firma’s dealmaker-in-chief, will have to persuade his backers – including large US retirement schemes such as the New York City Police Pension Fund – to hand over more cash.
But a source close to the beleaguered record label said: “We are pretty confident of getting that equity cure when the time comes.”
EMI’s underlying performance is improving, according to an update published yesterday, although the company remains saddled with £3bn of debt dating to Terra Firma’s buyout at the top of the market in 2007.
Maltby Capital cut its losses by two thirds year-on-year due to falling writedowns and lighter restructuring charges in the 12 months to 31 March. But it still haemorrhaged £512m after tax due to a crippling interest bill on its loans to Citigroup.
This was despite achieving sales of £1.7bn on the back of hits from Katy Perry and Gorillaz. Ebitda – a measure of underlying cashflow – increased 14 per cent to £334m.
Separately, Citi and Terra Firma are expected to hold talks in New York next month to discuss a settlement of a longstanding legal row. Terra Firma has accused Citi, which ran the auction of EMI as well as providing debt, of falsely inflating the company’s price by claiming other bidders were involved when they were not.