Citigroup has taken over debt-strapped EMI Group, closing a disastrous purchase of the music label by Guy Hands, founder of British private equity firm Terra Firma.
The foreclosure by Citigroup, EMI's main lender, brings the label of British acts such as The Beatles and Pink Floyd under American control until a new buyer can be found.
The takeover had been long expected, but came more than a month before Terra Firma Capital Partners Ltd. officially defaulted on roughly STG3.4 billion ($5.46 billion) of borrowings it took on to buy the label in 2007.
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Citigroup's move eliminates some uncertainty over EMI's future, and restructures EMI by reducing its debt by 65 per cent to STG1.2 billion ($1.93 billion).
Citigroup booked a STG2.2 billion ($3.53 billion) loss, while Terra Firma saw its STG1.75 billion ($2.81 billion) investment evaporate.
The agreement leaves EMI, which also represents Lily Allen, Katy Perry, Coldplay and dozens of other acts, with more than STG300 million ($481.77 million) of available cash, enough to fund its operations, and a sustainable level of debt.
For now, it won't have to rush into the arms of a financial saviour, although companies like Warner Music Group Corp and private equity firm Kohlberg Kravis & Roberts have been jockeying to buy the company.
EMI now has "the ability to invest in and grow its business," said Stephen Volk, the Citigroup vice chairman who will become the chairman of EMI's holding company, Maltby Acquisitions Ltd, in a statement.
"This is a positive development for EMI, its employees, artists, songwriters and suppliers."
EMI's chief executive, Roger Faxon, said in a statement that the restructuring "has given us one of the most robust balance sheets in the industry."
Uncertainty over its future was seen as a major distraction for EMI, which in recent years lost business from the Beatles' Paul McCartney and rock band Queen.
The move also came after a jury in New York found in November that the US bank did not fool Hands into buying EMI at an inflated price. Hands had testified that Citigroup dealmaker David Wormsley had misled him about the number of suitors for the label, while Citigroup said the accusations were an attempt to gain leverage in restructuring talks. Hands appealed the verdict earlier this month.