Citi to price $3.5 billion three-year mandatory convertibles to yield 7.5%-8%, up 20%-25%

By Rebecca Melvin

New York, Dec. 14 - Citigroup Inc. planned to price $3.5 billion of mandatory convertibles, known as tangible dividend enhanced common stock, at par of $100, to yield 7.5% to 8%, up 20% to 25%, according to a syndicate source.

The offering, which is expected to price Wednesday, will consist of $2.8 billion of prepaid common stock purchase contracts, recorded as equity, and about $0.7 billion of subordinated notes, recorded as debt.

Each mandatory, or T-DECS, is a unit including a prepaid stock purchase contract and subordinated amortizing notes due Dec. 15, 2012.

Citi is also offering $17 billion of common stock, plus an over-allotment option of $2.55 billion.

The deals are being done via Citi and Morgan Stanley.

Proceeds of both offerings will be used to repay $20 billion of TARP trust preferred securities.

Citi has also reached an agreement with the U.S. government and regulators to terminate its loss-sharing agreement.

In connection with Citi's offering, the U.S. Treasury will sell up to $5 billion of the common stock it holds in a concurrent secondary offering.

In addition, Citi has decided to issue in January 2010 $1.7 billion of common stock equivalents to employees in lieu of cash they would have otherwise received.

Citi plans to list the T-DECS on the New York Stock Exchange.

Citi is a New York-based diversified financial services holding company.

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