Terra Firma and EMI – end of story?

One of the stories I have been quietly watching over the years has been the takeover of EMI — the record company with extensive holding — by the private equity firm Terra Firma. The deal was highly leveraged and looked like an intangible-assets play where Terra Firma would sell bonds backed by the future royalty rights in order to pay for the acquisition of EMI. But then market for securitization collapsed. And alternatives to increase licensing revenue appears to have fallen flat.
Now, according to a story today in the Wall Street Journal, Citigroup Takes Control of EMI, the deal has reached the end of the line. And Citigroup is now recapitalizing EMI on its own.
I don’t know if the deal would have pay off if the securitization went through. It might have ended up transferring the loss to the bond holders rather than Citigroup. On the other hand, we really don’t know the valuation of the intangibles that EMI has — nor do we know the revenue stream. So for all we know, Citigroup might come out of this ok — even if Terra Firma greatly overpaid for EMI back in 2007.
There is one lesson however: intangible assets are still a risky market. If intangible asset-backed lending and securitization is going to move forward, we need to find sensible and effective ways of dealing with that risk.

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