EMI pawns its pop stars in 400m rescue b…

EMI is in talks to mortgage its back catalogue of music recordings in a last-ditch attempt to solve its mounting cash crisis.

The group is offering rival labels the chance to manage its North American catalogue business, which includes tracks by The Beatles and Blondie, for a five-year period.

Terra Firma, EMI’s owner, believes it can raise £400m from such a deal. Guy Hands, Terra Firma’s boss, calculates this would be enough to stave off a looming takeover by its lender, Citigroup. It would also mean Terra Firma could abandon plans to tap investors for another £120m. Without the extra cash, Citi, which Hands is suing for allegedly misleading him over the sale of EMI in 2007, could take control of the business on June 14.

The back catalogue contributes virtually all of the earnings at the company’s recorded music division, and up to £100m a year in North America alone. It is separate from EMI’s music publishing arm, which owns the rights to the songs themselves but not their recordings.

Talks on a deal began in recent weeks with Universal Music, but have since moved on to include Sony and Warner Music. Sources say they are keen, but would prefer a longer licence period.

“They are not quite selling the family jewels — just taking them to the pawn shop,” said one source.

If successful, EMI would partly withdraw from the world’s largest music market, though it could still try to sign new American acts. It is thought that EMI does not need the approval of its artists to license their work, but it must be careful because big earners such as Pink Floyd and Queen have already threatened to take their back catalogue elsewhere.

Artist unrest has been stirred up further by the revelation that KKR, the private equity group, is in talks with Warner Music to launch a break-up bid for EMI.

The licensing deal is one of several under consideration as Terra Firma tries to claw back some of its £1.8 billion investment. It thinks £400m would be enough to cure covenant breaches on its £3.2 billion loans until the debt matures in 2014.