Citigroup working to launch exchange offers for preferreds this week

By Angela McDaniels

Tacoma, Wash., June 8 - Citigroup Inc. expects to launch its previously announced exchange offers later this week, according to a company news release.

The company said press reports suggesting that federal banking agencies delayed the approvals needed for the offers are incorrect.

As previously reported, Citigroup plans to offer common stock in exchange for up to $33 billion of its convertible and non-convertible preferred and trust preferred securities. The conversion price is initially set at $3.25 per share.

The offer amount was originally expected to be $27.5 billion and was later increased to meet the U.S. government stress test requirements.

Securities expected to be 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.

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

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 about 24%.

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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