Here’s a recipe for heartburn: Take one heap of music business malaise, add an equally large helping of credit crunch. Stir.
How’s that taste, Citigroup? Thought so. Citi, which financed Terra Firma’s buyout of EMI last year, has been trying to lay off some of its $10 billion in EMI loans, but is having a hard time. No one, it seems, wants to back a struggling company in a struggling industry, particularly when the company seems unclear about where all of its money is going. FT:
The bank had tried to include those loans in a $12bn portfolio that it is planning to sell at a discount to private equity firms. However, Citigroup was forced to remove them from the package after it was unable to provide adequate financial information to potential buyers, people familiar with the matter say.
EMI is now in the midst of a radical restructuring being undertaken by Guy Hands, Terra Firma’s chief executive, that will include as many as 2,000 job cuts. Its bankers remain unclear about its future business prospects and the financial results of that overhaul, a person close to the situation said.
There is also uncertainty because EMI is reviewing the way that it accounted for merchandise shipments to retailers in late 2007, according to people familiar with the matter.
The FT story, which is both detail-laden and depressing, says EMI is specifically struggling to offload about $2.4 billion in debt, but feels OK about its chances with another $2.6 billion or so, since it’s supposed be replaced with a music rights securitization deal.
A few years ago, we’d agree with Citi about that, since music catalogues, particularly publishing rights, used to throw off steady, predictable cash flow. But now we’re thinking that convincing anyone that any part of the music business will generate predictable anything is a tough sell.
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