Citigroup refused a proposal from Terra Firma, the private equity group, to restructure the £2.7bn debt of troubled music business EMI, according to people familiar with the situation.

The US bank has refused to cut the debt on EMI by £1bn in return for a similar sized equity injection from Terra Firma. The debt is due to mature in 2014.

Terra Firma bought EMI at the height of the boom in 2007 for £4bn. Citigroup was the sole provider of the debt financing, which it failed to syndicate before debt markets froze.

EMI generated £298m ebitda in 2009. The group’s annualised interest bill is about £250m, according to a person familiar with the company.