EMI Group, at the centre of an acrimonious legal dispute between buyout house Terra Firma and Citigroup (C.N), posted a full-year 1.56 billion pound ($2.48 billion) net loss and said it needed more money to stay afloat.
The deal by Guy Hands's Terra Firma at the height of the buyout bubble in 2007 has come to epitomize the worst aspects of private equity dealmaking, with a high debt burden and a weak performance crippling the business.
In a statement on Thursday, EMI said it had recorded a net loss of 1.6 billion pounds for the year to end-March 2009, against a 412 million pounds loss a year earlier.
The loss included an impairment charge of 1.04 billion pounds after it wrote down the value of its catalogue, and restructuring costs of 136 million pounds.
The group also warned of a "likely significant" shortfall when the covenants on its 2.6 billion pound debt are tested at the end of March 2010.
Terra Firma has already written to investors to tell them it may need to inject about 100 million pounds into EMI to keep the company within its covenants until March 2011, a person familiar with the matter said.
Any additional money to bail out the investment will come out of Terra Firma's second and third buyout funds as money set aside in the EMI acquisition vehicle, Maltby Capital, is nearly exhausted, the person said.
The private equity firm has asked EMI to put together a business plan which it will consider before asking investors to put in more money.
EMI, now the smallest of the four major record labels, infuriated some of its biggest acts, including Robbie Williams, with a shake-up aimed at cutting costs and boosting Internet sales to better compete with majors such as Universal Music Group (VIV.PA) and Warner Music Group (WMG.N).
As part of the turnaround plan it cut up to 2,000 jobs. But it also lost some of its biggest acts, including Radiohead, in the ensuing row. Terra Firma is currently embroiled in a legal dispute with Citigroup relating to its 4 billion pound deal for EMI in 2007, and is seeking billions in damages.
The private equity firm lodged a claim with a New York court last year accusing the bank of inflating the price of the business by not revealing that the only other bidder, Cerberus Capital Management, had withdrawn from the auction.
Citigroup is contesting the claim and has asked that the case be moved to London, a potentially problematic situation for Hands, who moved to Guernsey last year in protest at Britain's tax regime. (Additional reporting by Kate Holton; editing by Will Waterman) ($1=.6299 Pound)