by Evan Kramer
Ever since private equity firm Terra Firma purchased the EMI Group in 2007, the label and publishing giant has been caught in a proverbial purgatory of sorts; too substantial and progressive to falter, yet too financially uncertain to move forward. Having finalized the acquisition on the eve of that year’s economic credit crunch, Terra Firma quickly found itself pulling rabbit ears out of its pants pockets in the face of a $3billion loan from its lender, Citibank. Terra Firma Chairman, Guy Hands, then filed a lawsuit with Citibank claiming that his loan officer, David Wormsley, had misrepresented the label and effectively duped him into purchasing the company. November 4th 2010 saw the conclusion of a four weeklong battle in the New York Supreme Court that favored Citibank. Guy Hands’s Terra Firma was made responsible for the full amount of EMI Group’s debt. Now, to stay in control of EMI, Guy Hands had to find the necessary funds to pay the debt—an improbable occurrence.
EMI and Citigroup
Following the New York Supreme Court’s decision, therefore, the transfer of EMI ownership had an air of inevitability. However, at the time of ruling, it was assumed by most that the transition would not take place until EMI’s March 31st, 2011 fiscal year-end, the time when Terra Firma was expected to default on its final loan payments. In an effort to expedite the process, and seize immediately control of the record label and publisher, Citibank asked for a solvency test that it expected EMI to fail. It did. As a result, Guy Hands and Terra Firma were removed early from the company and lost any stake they had in it. Research by Private Equity News would put Guy Hand’s Terra Firma’s loss at $2.7 billlion—perhaps the largest ever in the history of private equity.
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