The pension fund at EMI is in deficit to the tune of at least £115m, the music group has admitted, more than ten times the amount it previously suggested, presenting the heavily indebted company's private equity owners with a new cash crisis.
And the final amount of money needed to top up the fund could hit £217m, according to the company's annual report, out yesterday.
The pension deficit adds to financial problems at the company, which already needs hundreds of millions of pounds in cash infusions from its owners over the next four years if it is not to fall into the hands of its main lender, Citigroup. Stronger operating profits – thanks to big hit albums from the likes of Lady Antebellum and Katy Perry – are still not enough to prevent the company breaching its covenants, the report reiterated.
The Pensions Regulator failed to negotiate a deal between EMI and its pension trustees, so the matter has been passed to a formal determinations panel. EMI has dropped its argument that the deficit is only £10m, but will still argue that it is at the low end of the range.
Eric Champion, chairman of the EMI pensioners' association, said: "We think the regulator will be fair but the question that follows is whether the company will follow – or be able to follow – its ruling."
Terra Firma, the private equity group controlled by Guy Hands, acquired EMI in 2007. As well as offering the debt financing, Citigroup also ran the auction of the company, and Terra Firma is suing the bank, claiming it was misled during the auction process into paying over the odds for EMI. The two sides have scheduled arbitration proceedings in front of a US judge next month, in the hope of avoiding a courtroom showdown.