Monday, January 26, 2009

Citi sells $12bn in state-backed bonds

By Francesco Guerrera in the Financial Times:

Citigroup on Friday moved to bolster its strained balance sheet by selling $12bn of government-guaranteed bonds, the largest issuance since the US authorities agreed to backstop financial companies’ short-term debt in November.

The move – the second time Citi has tapped the government-backed facility – comes as the group tries to get back on a firmer financial footing after recording more than $50bn in credit-related losses since the beginning of the crisis.

After Citi reported its fifth straight quarter in the red last week, its executives insisted that the company was well capitalised and had enough financial resources to withstand the continuing turbulence in financial markets.

However, Vikram Pandit, Citi’s chief executive who last week decreed a break-up of the group into core and non-core businesses, said that it would continue to look at ways of bolstering its capital position.

People close to the offering, which was carried out by Citi’s own investment bank, said that its original size was increased after strong interest from investors. Some 225 investors bought into the deal, they added.

The $12bn issue overtakes a $10bn offering by General Electric as the largest bond issue to be guaranteed by the Federal Deposit Insurance Corporation as part of the government’s efforts to help the financial sector.

Analysts said Citi was likely to use the proceeds to refinance existing debt.

Traders said the $12bn offering consisted of a tranche of $7.5bn, 3.25 per cent fixed-rate notes due in April 2012 that was priced 105.75 points over US government bonds of similar maturity, and $2.25bn of 18-month floating-rate notes priced at a spread of 10 basis points above the three-month London interbank offered rate.

It included $1.9bn of three-and-a-quarter-year floating-rate notes sold at a spread of 33 basis points over three-month Libor, and $350m of three-and-a-quarter-year floating-rate notes priced at 45 basis points over one-month Libor.

Analysts expect other banks to issue FDIC-guaranteed bonds in the coming days following the announcement of fourth-quarter earnings.

The government-guaranteed bonds receive the top-notch triple A credit rating from Moody’s and Standard & Poor’s.

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