Terra Firma boss Guy Hands wants to help Citigroup rid itself of the $4.9 billion in EMI debt stuck on its books.
In his quarterly address to shareholders, Hands, head of the British private-equity firm that bought the music giant last year, said that Terra Firma remains on the hunt for takers to help reduce Citi’s exposure to the loan.
“In all leveraged buyouts, your bank is your partner, and we have worked hard, and continue to work hard, to see if there are ways to help Citigroup syndicate or sell down this loan,” he said, acknowledging publicly for the first time that “the [banking] crisis has been so deep that the debt package has had to remain on the balance sheet of the bank which provided it.”
While Citi’s struggles to off-load the EMI debt is a problem endemic to many financial institutions being rocked by the credit crunch, it is rare for a client to pitch in to help find a buyer.
What remains unclear is how a Terra Firma-assisted syndication would work.
However, Hands said the situation “is not ideal for EMI” and warned that it will require “more “heavy lifting” to deliver value” as an investment.
His comments come as Terra Firma is gearing up to start slashing expenses inside the music giant over the next month.
“The restructuring is well under way with a reduction in annual run-rate costs of [$200 million] set to be achieved by June,” Hands confirmed.
That sets the table for the long-anticipated layoff of 1,500 to 2,000 staffers worldwide.
Hands announced the move back in January but has yet to pull the trigger on the bulk of the cuts.
While Terra Firma raised an additional $500 million in new EMI equity in January to help pay for the restructuring, multiple sources have suggested that the timing of the cuts has been slowed by the need to conserve cash in order to meet the covenants on EMI’s debt.
Terra Firma insiders attribute the holdup to European labor laws, which require a lengthy review process before pink slips can be handed out.
EMI made headlines this spring when Wall Street sources disclosed that Citi had to leave EMI out of a $12 billion pool of leveraged debt the company sold off to a consortium of private-equity firms out of concerns about the value of the debt.
EMI’s debt has been viewed inside Citi as largely unsellable, sources said.
Hands has plenty at stake in his bet on the music business: 20 percent of his funds are tied up in EMI.