Terra Firma Seeks Help On EMI Financing
July 17, 2009 at 4:57 AM (PT)
Private equity group BLACKSTONE GROUP LP is reportedly advising U.K.-based rival TERRA FIRMA CAPITAL CORP. on a plan to issue high-yield bonds to repay CITIGROUP INC.'s GBP 2.6 billion ($4.26 billion) of loans, reports RTT NEWS. "The loan was taken by TERRA FIRMA to acquire EMI in AUGUST 2007, and was later assumed by EMI. BLACKSTONE is also looking at other options to restructure TERRA FIRMA's EMI buyout debt.
"EMI was acquired by TERRA FIRMA in AUGUST 2007 for GBP 3.2 billion after a dramatic decline in sales and the announcement that EMI had sustained a loss of GBP 260 million in 2006/2007. The acquisition of the EMI Group was financed by bank loans of GBP 2.6 billion and GBP 1.5 billion of shareholder debt and equity, constituting the total consideration of about GBP 4 billion.
"TERRA FIRMA has reportedly been working closely with the BLACKSTONE advisory team for the past several months on ways to refinance EMI's debt, without TERRA FIRMA losing control of its biggest investment. Among the options considered is to repay all or part of CITIGROUP's debt using money from a high-yield bond issue at a discount of 20% to 40% to face value. Another option was to replace loans maturing in 2014 with longer-dated bonds with fewer covenants imposing strict conditions on performance and financing.
"TERRA FIRMA has offered to inject GBP 300 million into EMI if CITIGROUP agrees to write down part of the debt, as CITIGROUP is also under pressure from U.S. regulators to speed up its toxic asset sales. However, negotiations are in a stand still as CITIGROUP is unwilling to write off or discount the face value of the debt. The loan to acquire EMI is one of Citigroup's largest single exposures.
"The reports reveal that TERRA FIRMA is also in talks with JPMORGAN CHASE AND CO. and MORGAN STANLEY to look at ways to reduce the amount EMI owes CITIGROUP, including a possible bond sale similar to one recently completed by EMI's rival WARNER MUSIC GROUP. WARNER MUSIC issued $1.1 billion of high-yield bonds in MAY."