(Corrects lead to clarify that the $894 mln is last part of
debt Citigroup owes Treasury)
By Danielle Robinson
NEW YORK, Feb 4 (IFR) - Citigroup Inc on Monday began the
process of repaying the last portion of the debt it owes the US
Treasury, by announcing an $894 million 9.5-year fixed-rate
subordinated bond issue.
The Citigroup subordinated notes, which carry a 4.05% coupon
and are currently held by the Treasury, will be sold in the bond
market on Tuesday.
Although Citigroup still owes the Federal Deposit
Insurance Corp about $2.225 billion, it will sell the
subordinated notes to general investors on behalf of the US
Treasury and give the latter the proceeds.
The deal worked like this.
Citigroup gave the US Treasury $894 million of subordinated
notes on Monday in exchange for the $800 million of remaining
trust preferred securities (TruPS) that the Treasury owned as
part of the bailout.
Citigroup exchanged the old TruPS for the new subordinated
notes because it makes more sense for the bank to have more
junior debt on its balance sheet than TruPS, which have lost
their capital securities status under Dodd Frank.
The $94 million extra that Citigroup is giving Treasury is a
premium that equates with the value of the old TruPS in today's
At a coupon of 4.05%, Citi has managed to reduce the amount
it usually has to pay to issue subordinated debt versus senior
unsecured obligations at the parent level.
Normally its senior/subordinated spread differential is
about 65-70 basis points. If the deal is priced at par, then the
4.05% represents a 55bp differential.
The tighter pricing is because investors are keen to buy
subordinated rather than senior unsecured bank debt, now that
the FDIC and the Fed have started working on new liquidation
rules that will make all debt at the holdco level bail-inable,
regardless of seniority.
(Reporting by Danielle Robinson; Editing by Ciara Linnane)