Citi to Repurchase Notes of $536M – Analyst Blog

As a part of its liability management strategy, on May 6, Citigroup Inc. (C ), popularly known as(Citi), announced the closure of the tender offer for buying back its Notes that are due for maturity in a year’s time. The commencement of the tender offer was made on April 22, 2010, when Citi decided to repurchase about $1.1 billion aggregate principal amount of its Notes.

 

Accordingly, at the close of the tender offer on May 6, the company ended up validly tendering aggregate principal amount of Notes worth about $535.9 million. Citi has accepted the offer to repurchase U.S. and non-U.S. dollar Notes. The U.S. dollar Notes include:

    •    $10.0 million (original outstanding aggregate principal amount) ─ 6.60% Subordinated Fixed Rate Notes due September 15, 2010, aggregate principal repurchase amount being about $4.11 million

    •    About $789.4 million ─ 7.25% Subordinated Notes due 2010, aggregate principal repurchase amount being about $378.55 million

    •    $25.0 million ─ 6.50% Subordinated Fixed Rate Notes due December 1, 2010, aggregate principal repurchase amount being about $4.74 million

    •    $25.0 million ─ 6.65% Subordinated Notes due December 15, 2010, aggregate principal repurchase amount being the whole of $25.0 million

    •    $10.0 million ─ 6.49% Subordinated Notes due January 11, 2011, aggregate principal repurchase amount being the whole of $10.0 million

 

Additionally, the non-U.S. dollar Notes include Deutsche Mark (DEM) 350 million (about € 178.95 million) 5.50% Subordinated Notes due January 30, 2010, aggregate principal repurchase amount being about DEM175.7 million (about € 89.84 million).

 

As per the regulation set forth for Note repurchase, Citi expects to settle down all the tenders and commitments on May 11, 2010. The aggregate U.S. dollar amount for the Notes that are denominated in Euros has been calculated using the exchange rate as of May 6, 2010.

 

This is not the first occasion that Citi is repurchasing Notes from the market. In February 2010, Citi completed the repurchase of $3.02 billion aggregate principal amount of its Senior Notes.

 

While Citi is utilizing its net cash available for getting rid of its old debts that are about to reach maturity, management believes that this action is only a part of the company’s debt restructuring policy in order to manage its liabilities and also to utilize its funds in the best possible manner, without jeopardizing the company’s liquid and capital position. Retiring debt at the right time shall also save the company from the related interest costs.

 

Overall, we believe that after repaying $20 billion of the government’s bailout fund in December 2010, and returning to profit in the recent first quarter of 2010, Citi is gradually taking a steady path of recovery. With an attempt to reduce liabilities, along with improvements in credit quality, operating expense and capital ratios, at such a juncture, Citi appears to have stepped into a progressive phase. However, given the current market volatility that skews other macro-economic factors as well, we remain cautious in the near term.