Citigroup to Keep EMI Loans as Hands Restructures, Person Says
By Bradley Keoun
April 12 (Bloomberg) -- Citigroup Inc., the U.S. bank that financed private-equity firm Terra Firma Capital Partners Ltd.'s purchase last year of music company EMI Group Plc, has decided not to sell about $5 billion of loans provided for the transaction, a person familiar with the matter said.
The loans aren't marketable because of investor anxiety over EMI's future as it undergoes a reorganization orchestrated by Terra Firma Chief Executive Officer Guy Hands, said the person, who declined to be identified because the plans aren't public. Hands said in February that the turnaround was proving ``a lot tougher to do than we expected.''
Failure to shed the loans is a setback for Citigroup, which is trying to dispose of about $43 billion of leveraged-buyout loans it was stuck with last year when global credit markets seized up. The EMI financing is not included in the $12 billion of loans that the bank has agreed to sell to the buyout firms Apollo Management LP, Blackstone Group LP and TPG Inc.
That sale is scheduled to close early next week at a price of about 89 cents on the dollar, the person said. Citigroup may accept the loss to protect itself from deeper losses that would occur if prices declined further.
Citigroup spokesman Daniel Noonan declined to comment. Messages left today with EMI's press office in London, and on the mobile phone of Andrew Dowler, a spokesman for Terra Firma, were not immediately returned.
Of the financing provided to EMI, about $2.5 billion is scheduled to be refinanced by creating securities that are backed by revenue from music sales, the person said.
Loan Writedowns
Citigroup plunged 21 percent in New York trading this year, partly on concern that writedowns of leveraged loans might add to $24 billion of losses the bank has taken so far on mortgages, bonds and corporate loans that have tumbled in value. Chief Executive Officer Vikram Pandit is shedding high-risk holdings to shore up capital.
The bank is the biggest in the U.S., with about $2.2 trillion of assets at the end of 2007.
The leveraged loan market dried up last year after losses on mortgage bonds prompted fixed-income investors to shun assets deemed risky. Leveraged loans are made to companies with credit ratings below investment grade, meaning they're considered by Moody's Investors Service and Standard & Poor's to carry a higher risk of default.
The loans are bought or sold in a secondary market of banks, hedge funds and other firms that swap the debt just as investors trade bonds. Under U.S. accounting rules, Citigroup must record losses when the market value of the buyout loans on its balance sheet falls.
The most actively traded leveraged loans, which fetched 100 cents on the dollar as recently as last June, fell to a record low of 86.28 cents in February, according to data compiled by Standard & Poor's. Prices have since rebounded to about 90 cents.
To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.
Last Updated: April 12, 2008 11:05 EDT |
