On Tuesday, two units of Citigroup Inc. (C) — Citibank NA and Citigroup Funding Inc. — jointly sold $5.0 billion of debt in three parts. The notes are guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program (TLGP).
Citibank NA plans to issue $1 billion worth of 2-year floating-rate notes issue with an expected coupon rate of about 3 basis points (bps) below the 3-month London Inter-bank Offered Rate (LIBOR), and a $1.5 billion worth of 2-year fixed-rate notes expected to yield about 32.7 bps over U.S. Treasuries.
Citigroup Funding is planning to sell a 3-year fixed-rate note expected to yield about 49.4 bps over U.S. Treasuries.
Citigroup was the sole book-running manager for the sale.
FDIC-backed debt is cheaper to issue than normal debt because investors are willing to accept a lower interest rate associated with lower risk coming from a government guarantee.
The debt issue is in sharp contrast to the top-level management’s plans at Citigroup to downsize the U.S. government’s 34% stake in the company through a multibillion-dollar stock offering. Under the plan, Citigroup would issue new shares to the public and the Treasury Department would sell at least a portion of its Citigroup holdings.
The bond issues could now reinforce the perception that Citigroup still does not demonstrate adequate capital and liquidity and hence delay the sale of the government’s stake in the company.
Citigroup will release its third quarter 2009 earnings on October 15, 2009 with a conference call scheduled later in the day to discuss its results. Ahead of its results, we maintain our Neutral recommendation on the stock.
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