Hits Daily Double leads today with a leaked internal memo from Elio Leon-Sceti, EMI Music’s £1 million-plus a year chief exec, to the debt laden Brit kit music company’s staff.
The newly minted replacement for private equity firm Terra Firma CEOÂ Guy Hands is quoted in the memo as saying, “over the past couple of days, there have been some misleading and inaccurate media reports about EMI’s financial position. You may receive questions from artists and business partners.
“The facts are as follows: EMI has an extremely stable and flexible financial structure. Our debt, which is provided by Citigroup, is what is known as ‘covenant-lite.’Â In other words there are no traditional covenants.
“Normal corporate loans have covenants–if a company breaches them, the lender automatically takes control of the assets. Instead, under Terra Firma’s agreement with Citigroup, we have some financial ratios that we are tested on at certain dates. If those ratios are not met at the required times, our holding company Maltby injects small amounts of additional investment capital which are called ‘equity cures.’
“Those equity cures were expected and are provided for. They come out of a fund that Terra Firma established for Maltby/EMI nearly two years ago in the full knowledge that, as we transformed the business, there would be a need for some additional investment capital. In the last financial year, we were on budget with our equity cures.”
All well and good, and EMI does have a goodly amount of cash reserves on hand, but it would be hard to argue that a crippling $4.7 billion loan to Citigroup seriously mutes the music firm’s ability to growl like a true blue British bulldog.
According to reports, London-based Terra Firma injected approximately $45 million into EMI late last month — the second time in less than a year that the private-equity firm has had to pump cash into the label. Terra Firma, run by Guy Hands, was forced to lend $23 million to EMI last September. In March, Terra Firma wrote off half of its investment in EMI and Citigroup has also trimmed the asset value in its own books.
Citigroup, until last year the world’s largest financial firm by assets, has just been jettisoned from the Dow Industrial Average index and a recent recipient  of $45 billion in government aid, turned the corner to profit in Q1 after ringing up close to $40 billion in losses over five successive quarters.
Across the pond, in New York, Canadian transplant Edgar Bronfman at Warner Music is rumoured to have a strategy in place to pounce on the crown jewel of British popular music if the price is right. The shifting sands of the old school trad music biz expose bloodied noses and leaking ballasts, but as the sayings go, when the going gets tough…,never say die and bollock the lot of you.
