EMI, the music group, is contemplating plans to borrow £1 billion against publishing revenues to reengineer its balance sheet and cut costs.

Directors of the embattled company, which issued its second profit warning in just over a month last week, are understood to have held talks over the possibility of borrowing the money to repay more expensive debt. If the group’s board adopts the proposal, it is expected that the move could reap cost savings of about £20 million a year.

The early-stage proposal would use revenues from its EMI Music Publishing, which owns the copyright to music by artists including Black Eyed Peas and White Stripes, as security for the loan. The music publishing unit has remained profitable despite the group’s recent disappointing trading, which affected performance at its sister recorded music division.

An EMI spokesman said yesterday that financing options were reviewed regularly, but that there had been no “new decisions at this time”.

News of the financing proposals comes after EMI last week blamed a 20 per cent slump in sales of CDs in the US for a 15 per cent shortfall in sales of recorded music.

Five weeks earlier the company had issued a profit warning after disappointing Christmas sales. The warning last week prompted further speculation of revived private equity interest. Analysts reckon that a private equity buyer could split the units, selling the recorded music division to a rival, such as Warner Music, and retaining the publishing business.

EMI shares ended last week at 221p. Last summer the group rejected a bid from Warner Music at 320p a share amid uncertainty over how regulatory authorities would view a combination of the two powerful music groups.

Tim Rees, a fund manager at Insight, EMI’s largest shareholder, said last week that management needed to deliver on promises to cut costs. Bankers familiar with EMI indicated that the share price fall would prompt a reassessment.

Separately, Eclectica, a hedge fund with a ¾ per cent stake in the group, is understood to be planning to call on the EMI board to appoint investment bankers to determine the value of the group’s music publishing business.

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