Debt reduction deal could end EMI legal battle

EMI owner Guy Hands is demanding that £2bn is cut from the music group’s debt pile as the price for calling off his court case against the investment bank Citigroup, it was reported today.

An eleventh-hour deal would end a long-running legal battle over the £4.2bn acquisition of EMI by Mr Hands’ private equity group Terra Firma in 2007.

Barring any last-minute settlement, a six-person jury will be selected in a New York courtroom on Monday to consider Terra Firma’s claims that it was misled into overpaying for EMI by Citigroup’s UK investment banking head David Wormsley. Citigroup has vigorously denied the claims.

The Sunday Times said a proposal from Terra Firma involved Citi taking a minority stake in EMI in exchange for wiping out a portion of its £3bn debt. The bank has already written down the loan in its own books.

Terra Firma, which is seeking damages of up to £7bn from the bank, also wants EMI’s borrowing terms to be reset. While the music group’s trading performance is improving, repayments are due to increase towards the end of the loan term in 2015, the newspaper added.

Terra Firma claims that it was misled into believing that another private equity bidder remained in the EMI auction, causing it to pay an over-inflated price. The case is said to centre on three phone calls between Mr Hands and Mr Wormsley in the days before bids for EMI were due.

In a separate development, EMI announced on Friday that it had taken steps to plug its pensions hole by agreeing to provide £197m in additional funding over the next six years. EMI’s artists include Lily Allen and Robbie Williams.