PRIVATE equity billionaire Guy Hands is racing to develop a rescue plan for EMI, the hugely indebted record label, after eleventh-hour talks over a deal with?Universal Music and Sony collapsed.

EMI was set to breach its covenants on more than £3bn of loans with Citigroup yesterday. Hands, who owns the company through his Terra Firma buyout vehicle, had been hoping for a last-minute reprieve by licensing the rights to artists such as the Beatles and Coldplay to Universal for £200m.

But EMI chairman Charles Allen summoned the board at lunchtime to say the tie-up would not go ahead. After a week of on-off discussions it is understood EMI was not happy with the final price Universal offered, while the US firm was uncomfortable with Citi’s background influence.

Terra Firma now has a last chance to find a £120m “equity cure” to close the gaping ratio between EMI’s profits and its debt before 14 June.

EMI’s recorded music division is formulating a plan of action, to be put to 200 of Hands’ investors at the end of April. Hands will hope the document, likely to focus on the growth EMI can achieve by exploiting digital platforms, will convince them to stump up the cash to keep the struggling company beyond Citi’s grasp.

Last night Terra Firma seemed confident it would be able to meet the summer deadline. But industry observers were not so sure. One banker said: “It’s over. EMI belongs to Citi, it’s as simple as that.”

Terra Firma paid a meaty £4.2bn for EMI at the top of the market in 2007 using financing from Citi. The leverage accounts for EMI’s debt legacy, which Citi was unable to parcel up and sell on as the downturn struck. The situation tipped into crisis when EMI published its accounts in February. Its holding company, Maltby Capital, made a loss of £1.5bn despite generating underlying growth of around 80 per cent.

A friendly resolution is unlikely. Hands is suing David Wormsley, Citi’s top banker, for allegedly misleading him during the takeover of EMI.