EMI loans deemed 'troubled' on day deal closed

A senior credit officer at Citi warned the bank's loans to Terra Firma's 2007 buyout of EMI could be a 'huge loss', and revealed Citi viewed the loans as troubled from the start.

The debt Citi provided to Terra Firma to finance the purchase of EMI were placed in the bank's troubled loans unit the same day Guy Hands completed his takeover of the music publisher, according to testimony from Citi's senior credit officer Ian Cockerill in court Monday.

In August of 2007, Terra Firma bought out EMI using approximately £1.5 billion (€1.7 billion; $2.4 billion) in equity and £2.5 billion of debt supplied by Citi.

During Monday's court proceedings, a July 2007 email from Cockerill was shown which expressed concern over the bank extending the terms of its £2.5 billion loan to Terra Firma, according to the hearing transcript. “Oh dear, oh dear! These must be very valuable relationships for us to have extended again. I can see us taking a huge loss on this deal”, Cockerill wrote in the email.

Cockerill testified that as early as June 2008 Citigroup began writing down the value of its loans to EMI. Citi valuing EMI as worth less than its debt would have meant Terra Firma's equity stake was worthless.

Terra Firma is suing Citi for damages, claiming it made its bid EMI only after Citi banker David Wormsley misled Terra Firma chief executive officer Guy Hands to believe that Cerberus Capital Management was still bidding for EMI, when the firm had already dropped out of the bidding. The jury's deliberations are expected to begin this week.