CITIGROUP HAS taken control of record company EMI in a dramatic move that saw the US bank write off £2.2 billion (€2.56 billion) of loans to the heavily indebted group.

The move leaves Guy Hands’s buy-out house Terra Firma nursing losses of £1.75 billion on his most high-profile deal and raises big questions over his ability to raise another big institutional private equity fund.

Citi moved to take control of EMI yesterday after a holding company for the music group breached an ongoing test of solvency triggered by the sheer weight of its £3.4 billion debts.

Administrators at PricewaterhouseCoopers were appointed after an emergency board meeting early yesterday by the directors of Maltby Investments, the holding company that owns EMI.

Maltby then sold to Citi through a pre-packaged administration which is the largest on record.

Following the takeover, Citi wrote down 65 per cent of the group’s £3.4 billion of debts, leaving the company with more than £300 million in cash on hand. It is believed to have been done without EMI’s owner Terra Firma knowing. Terra Firma declined to comment and Mr Hands could not be reached for comment.

Mr Hands last year lost a court case in the US against Citigroup, in which he alleged Citigroup had tricked him into overpaying for EMI, after the jury found unanimously for the bank. Mr Hands is appealing the verdict.

The debt-for-equity swap by the bank is set to leave the music group in a much stronger financial position. “The recapitalisation of EMI by Citi is an extremely positive step for the company,” said Roger Faxon, EMI chief executive.

“It has given us one of the most robust balance sheets in the industry with a modest level of debt and substantial liquidity.”

The deal involved the use of a prepackaged administration to avoid any of the group being in insolvency for a period of time. It is believed Citi is not planning to rush a sale. – (Copyright The Financial Times Limited 2011)