Exactly how bad is Terra Firma’s EMI deal turning out to be?
Pretty bad, judging by this blog post from the BBC’s business editor Robert Peston, who knows a thing or two about bad banking deals after the last couple of years. He’s outlined what he describes as “one of the biggest-ever losses on a private equity investment”.
In a nutshell, he says that EMI’s results for 2009 will show earnings before interest, tax, depreciation and amortisation of around £300 million. Which translates into a notional value for the recorded music business of around £1.8 billion – or $2.8 billion.
Yet the takeover was financed with $3 billion of equity from Terra Firma and partners, and $5 billion of loans from US bank Citigroup – with Terra Firma injecting a further $500 million of equity last year.
As Peston explains: “Every single cent of Terra Firma’s equity has been wiped out. It also means that Citigroup is facing a loss of more than $2bn on the loans it provided. The total loss for Terra Firm and Citi together would be something like $5.7bn. Ouch.”
He goes on to predict that Terra Firma and its backers will try to make good on the deal by injecting further equity to ensure EMI meets the terms of its loans from Citigroup, while pointing out that EMI’s £300 million EBITDA is at least covering its £215 million of interest payable on the debt.
Even so, ouch is very much the word.
Tags: EMI
February 5th, 2010 at 12:05 am
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