Citigroup's private exchange offer for preferreds fully subscribed

By Angela McDaniels

Tacoma, Wash., July 23 - Citigroup Inc. said $12.5 billion liquidation value of its convertible preferred securities held by private holders were exchanged for interim securities and warrants in its exchange offer.

The company offered to exchange up to $12.5 billion of the convertible preferreds held by investors other than U.S. government agencies in the offer, and the U.S. government matched the exchange with $12.5 billion of its non-convertible preferreds, according to a company news release.

The interim securities will convert to common stock, subject to shareholder authorization of the increase in Citigroup's authorized common stock. The interim securities will pay a 9% dividend if this shareholder authorization is not received, and the dividend will increase quarterly up to a cap of 19%.

The warrants only become exercisable if the shareholder authorization is not obtained and will entitle the holders to purchase a total of 790 million shares of Citigroup common stock at $0.01 per share.

Public offers

The company is also holding exchange offers for its publicly held convertible and non-convertible preferreds and trust preferreds. Those offers began on June 10 and will expire on July 24.

The company is offering shares of common stock in exchange for up to $20.5 billion of 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% enhanced trust preferreds; 7.875% enhanced trust preferreds; 7.25% enhanced trust preferreds; 6.875% enhanced trust preferreds; 6.5% enhanced trust preferreds; 6.45% enhanced trust preferreds; 6.35% enhanced trust preferreds; 6.829% enhanced trust preferreds; 7.625% trust preferreds; 7.125% trust preferreds; 6.95% trust preferreds; 6.1% trust preferreds; and two series of 6% trust preferreds.

The conversion price is $3.25 per common share.

There is a cap on the amount of trust preferreds Citigroup can accept. The company will accept trust preferreds with a total liquidation amount equal to $5.6 billion plus whatever remains of a $20.5 billion cap after the regular preferreds are accepted.

The closing of the exchange by the U.S. government and the private exchange offer was a condition to the exchange offers for the publicly held preferreds and trust preferreds.

The U.S. government has agreed to match the liquidation value of the securities exchanged in the public offers, up to $12.5 billion, by exchanging additional preferreds for more interim securities. It will then exchange its remaining preferreds for new trust preferreds bearing an annual coupon of 8%.

If all holders of public preferred and trust preferred securities participate in the exchange offers, about $58 billion of preferreds and trust preferreds will be converted into common stock.

In all, the offers could increase the company's tier 1 common equity as of March 31 by up to $64 billion.

Proxy statements

Citigroup is also soliciting proxies from the public holders of the preferreds and trust preferreds to increase the number of authorized common stock, to effect a reverse stock split and to amend its charter and some certificates of designation to modify the rights of the preferred and trust preferred holders.

The proposed changes, as outlined in the preliminary proxy statements, include:

• Eliminating the requirement that full dividends on all outstanding public preferreds must have been declared and paid, or declared and set aside, before Citigroup can pay any dividend on or redeem common stock or any other securities junior to the public preferreds;

• Eliminating the requirement that if full dividends are not declared and paid in full on any series of public preferreds, dividends on all series of stock ranking equally with that series of public preferreds be declared on a proportional basis;

• Eliminating the requirement that dividends on outstanding preferreds be paid, or declared and set apart for payment, before any dividends can be paid on any outstanding shares of common stock;

• Eliminating, upon the delisting of depositary shares representing a series of public preferreds, the right of holders of public preferreds to elect two directors if dividends have not been paid for six quarterly dividend periods;

• Clarifying that any public preferreds acquired by the company may not be reissued by Citigroup as part of that series and will instead be restored to the status of authorized but unissued shares of preferred stock without designation as to the series; and

• Increasing the number of authorized shares of preferred stock.

Holders who wish to exchange must vote in favor of the changes to their rights, according to the preliminary proxy statement.

Citigroup is a financial services company based in New York.

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