This weekend, EMI gave, perhaps, a grim portent of things to come for leveraged buyouts.
By our reckoning, Monday’s £200m rights issue is, in fact, an “equity cure.”
This equity has probably been issued to meet a cash-flow shortfall - real or projected - on EMI’s £2bn loan facility with Citi, put in place this July when the record label was the object of an LBO from Terra Firma. The cure may be required to bolster faltering EBITDA to debt ratios tested by the loan facility.
Cause for around a third of its workforce - or around 1,700 jobs - to be slashed, as reported by the Mail on Sunday.
Other LBOs too, are likely to be feeling the pinch. What, we wonder, will be the impact on deals such as Alliance Boots - where the debt taken on board is an eye-watering £12bn.
The Citi facility for EMI was one of the last “covenant-lite” LBO financing deals to be pushed through. Under more common LBO financing terms, we suspect EMI would be looking at a default.
