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NEW YORK—Citigroup
Inc. is in talks to sell $12 billion of loans at a loss
to Apollo Management LP, Blackstone Group LP and TPG
Inc. as part of an effort to shrink the bank’s balance
sheet, a person briefed on the matter said.
A sale
to the private equity firms would shield the bank from
further declines in the value of the debt, said the
person, who declined to be identified because the
negotiations are private. The loans are part of the $43
billion in financing Citigroup agreed to provide for
leveraged buyouts last year before credit markets froze,
saddling the company with the hard-to-sell assets.
Citigroup shares have plunged 19 percent this year,
partly on concern that writedowns of leveraged loans
might compound $24 billion of losses the New York-based
bank has taken so far on mortgages and bonds that have
tumbled in value. Chief executive officer Vikram Pandit
is shedding high-risk holdings on the bank’s
$2.2-trillion balance sheet.
“As a
Citigroup investor you won’t have to worry about more
mark-to-market writedowns on these loans,’’ said William
B. Smith, senior portfolio manager at Smith Asset
Management in New York, which oversees about $80
million, including about 66,000 Citigroup shares.
“There’s now a consortium of private-equity firms saying
what they’re worth.”
Daniel
Noonan, a Citigroup spokesman, declined to comment, as
did Apollo spokesman Steven Anreder and Blackstone
spokesman Peter Rose. TPG didn’t return messages seeking
comment.
The
leveraged loan market seized up last year after losses
on mortgage bonds prompted fixed-income investors to
shun assets deemed risky. Leveraged loans are made to
companies with credit ratings below investment grade,
meaning they’re considered by Moody’s Investors Service
and Standard & Poor’s to carry a higher risk of default.
Citigroup is planning to complete the loan sale to
Apollo, Blackstone and TPG as soon as next week, when
the bank reports first-quarter results, the person
briefed on the talks said. The deal may help clear the
$200 billion logjam of unsold loans, said Chris Taggert,
an analyst at research firm CreditSights Inc. in New
York. Money managers who have raised funds to invest in
distressed debt are striking deals with Citigroup and
other banks now eager to unload them, he said.
“It
would definitely raise loan prices given that
large-scale buyers are stepping in,” Taggert said.
Apollo,
Blackstone and TPG stand to profit if demand for the
loans pushes prices above Citigroup’s discounted sale
price, which may be about 90 cents on the dollar, the
Financial Times reported. Apollo and Blackstone, which
manages the world’s biggest buyout fund, are based in
New York. TPG, based in Fort Worth, Texas, led a group
that bought a $7 billion stake in Washington Mutual
Inc., the largest US savings and loan firm.
The most
actively traded leveraged loans, which fetched 100 cents
on the dollar as recently as last June, fell to a record
low of 86.28 cents in February, according to Standard &
Poor’s. Prices have since rebounded to 90.14 cents as
banks reduced their backlog of unsold loans.
Pandit
is poised to dispose of more than $200 billion of the
company’s assets, which increased by almost $700 billion
from 2005 through 2007. Since he succeeded Charles O.
“Chuck” Prince in December, Pandit has been whittling
down Citigroup’s inventory of leveraged loans and
high-yield bonds while balking at financing pending
deals. Under US accounting rules, Citigroup must record
losses when the market value of the buyout loans on its
balance sheet falls.
Two
weeks ago, Citigroup led the sale of $1.45 billion of
bonds that Apollo and TPG used to finance their $17.1
billion purchase of casino operator Harrah’s
Entertainment Inc. The bonds priced at 84 cents on the
dollar.
Last
month, Citigroup and five other banks were sued by
private-equity firms Bain Capital LLC and Thomas H. Lee
Partners LP for refusing to finance their $19.5-billion
acquisition of Clear Channel Communications. The bank
group countersued last week.
Citigroup also tried to back out of a
bankruptcy-financing package for Solutia Inc., a St.
Louis-based maker of nylon and plastics, because of
changes in the credit markets. The case was settled in
February. (Bloomberg) |
