EMI to raise £1bn against future music publishing revenues

The struggling music company EMI looks set to undertake a bold restructuring of its balance sheet by borrowing up to £1bn against the value of its highly profitable publishing business.

The move could slash EMI's interest charge by up to £20m a year by clearing its more onerous debt repayments. EMI had net debt of just over £1bn at the end of its fiscal first half, but that figure is expected to grow to around £1.25bn as a result of restructuring costs that include significant redundancy payments following the removal of some key executives.

The refinancing forms part of a plan to slice £110m of annual costs from the business to cope with what EMI terms "an unprecedented level of market decline" as more music fans buy recordings online and the price of CDs continues to fall.

The strength of EMI's publishing business has been overshadowed by the crisis at the company's recorded music operations over recent months. Poor sales from key artists such as Robbie Williams, combined with EMI's continued weakness in the US market, have already triggered two profit warnings in 2007.

EMI's music publishing arm is the biggest in the world. It makes money by licensing the use of its vast back catalogue, for instance in films and television commercials, and is a highly profitable and cash-generative business in contrast to EMI's volatile recording business which spends large amounts to develop and promote artists with profitability often dependent on the success of a single CD.

A company spokesman said of the refinancing plan: "It is an option as we regularly review our financing options, but no decisions have been made."

Insiders have dismissed reports that EMI is looking to split the company's publishing and recordings arms. One source said: "If these two businesses belonged apart, it would have been done a long time ago."

There has been renewed speculation of a private-equity bid for EMI since last week's profit warning - the second in five weeks - with potential buyers said to be keen on keeping the publishing arm and selling off the recorded-music division to Warner Music to create value. Warner Music could yet pounce on its struggling rival after talks broke down last year, but the US company remains unlikely to move until European regulators complete a review of the 2004 merger of Sony and BMG's record music businesses.