Citigroup to increase exchange offers for preferreds, trust preferreds by $5.5 billion

By Angela McDaniels

Tacoma, Wash., May 7 - Citigroup Inc. said it will expand the planned exchange offers for its convertible and non-convertible preferred and trust preferred securities by $5.5 billion to the meet U.S. government stress test requirements.

The change increases the maximum amount of securities to be accepted to $33.0 billion from $27.5 billion, according to a company news release.

The company expects to launch the exchange offers shortly after further review by the Securities and Exchange Commission and finalization of a definitive agreement with the U.S. government.

The U.S. government will continue to match the exchanges by public and private holders up to a maximum of $25 billion of its preferred stock at the same conversion price. Citigroup issued the preferreds to the government under the Troubled Asset Relief Program.

The U.S. government will also continue to exchange the portion of its existing preferred securities that are not exchanged for common shares into new 8% trust preferred securities.

Citigroup said the transaction could increase its tier 1 common capital to as much as $86.2 billion from the first-quarter level of $22.1 billion.

Based on the maximum eligible conversion, the U.S. government would own about 34% of Citigroup's outstanding common stock following the offers, and existing shareholders would own approximately 24%.

The offers

As previously reported, Citigroup is seeking to exchange the preferred securities for common stock. The conversion price is initially set at $3.25 per share.

Securities covered by the offer include the 8.5% non-cumulative preferred stock, series F; 8.4% fixed-rate/floating-rate non-cumulative preferred stock, series E; 8.125% non-cumulative preferred stock, series AA; 6.5% non-cumulative convertible preferred stock, series T; 8.3% E-Trups; 7.875% E-Trups; 7.25% E-Trups; 6.875% E-Trups; 6.5% E-Trups; 6.45% E-Trups; 6.35% E-Trups; 6.829% E-Trups; 7.625% Trups; 7.125% Trups; 6.95% Trups; 6.1% Trups; and two series of 6% Trups.

Citigroup will offer to exchange:

• Interim securities and warrants for private convertible preferreds held by investors other than U.S. government agencies;

• Interim securities and warrants for U.S. government-held preferred securities; and

• Common stock for convertible and non-convertible preferred securities that had been publicly offered.

Citigroup will need shareholder approval to amend its charter to, among other things, increase the number of authorized shares and authorize the board to execute a reverse stock split.

According to a prior 8-K filing with the SEC, if shareholder authorization is not received within six months after closing the exchanges, the interim securities will pay a 9% dividend that will increase by 2% per quarter, capped at 19%.

In addition, the warrants will allow private holders to purchase Citigroup shares at $0.01 per share if authorization is not obtained within six months, with a maximum of 790 million shares to be issued for the warrants.

The conversion of interim securities to common shares will be completed upon adoption of the amendment to authorize additional shares.

Citigroup is a financial services company based in New York.

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