Terra Firma, the private equity group run by financier Guy Hands, has been given a last-minute extension by the Takeover Panel for its £2.4bn offer for EMI - home to Lily Allen and Joss Stone.

Before the deadline yesterday afternoon, Terra Firma had received less than 85% of acceptances - short of the 90% required to guarantee funding from its bank Citigroup.

It was forced to turn to the Takeover Panel, which has granted an extension until 1pm on Wednesday for Terra Firma to secure the remaining 5% of acceptances.

For any bank to finance a deal, there is a formal requirement that the bidder gains at least 90% of shareholder acceptances. But banks usually waive that requirement if the bidder is at or close to 80%.

Last week's volatility in the debt market, however, has severely rattled banks and private equity firms. The cost of debt has risen on the credit markets in response to the collapse of the US sub-prime mortgage sector. This makes leveraged deals riskier and more expensive to fund.

Citigroup is putting up about £2bn to fund the EMI deal, but it is finding it hard to sell on the debt. This means it could be stuck with £2bn of debt until the volatility in the debt market calms down.

It is understood the US bank has declined to tell Terra Firma whether it will waive the 90% requirement or not - forcing the private equity firm to seek the extension. If at least 90% of shareholder acceptances are not obtained by Wednesday, and Citigroup enforces the stipulation, the whole deal may fall through.

The bank's refusal to assure Terra Firma - a long-standing client - that it will waive the requirement is a testament of how jittery it is about the state of the global debt markets.

Terra Firma has managed to trump the 260p offered by the US label Warner Music and rejected by EMI in March.