Tuesday, April 8, 2008
Citi Unloads $12 Billion Leveraged Loans
David Enrich and Serena Ng, Wall Street Journal, report that CitiGroup, which was sitting on $43 billion worth of leveraged loans at the end of the fourth quarter, is now on the verge of unloading about $12 billion of those leveraged loans and bonds in a deal with a group of private equity firms. Under the planned deal, Citigroup will sell the loans and bonds to buyout firms including Apollo Group, TPG and Blackstone Group, people briefed on the deal said. The firms are expected to pay an average of slightly less than 90 cents on the dollar. The New York company is scrambling to complete the $12 billion debt sale by the time it reports quarterly results April 18.
The credit markets are thawing, and the credit crunch is over, and all that, while technically true, is basically a pile of hogwash here. What's important here, as usual, is the last line - Quarterly results on April 18th. At which time Citi is expected to announce $15.2 billion to $16.8 billion in write-downs, according to an independent research agency Creditsights.
And there's more. Additional information from the New York Times. In a twist, some of the debt the firms plan to acquire helped finance their own deals, like the buyouts of Harrah’s, Alltel and TXU. Loans that supported buyouts by other private equity firms, like the takeover of First Data by Kohlberg Kravis Roberts, are also expected to be included in the package. Apollo is expected to buy about half the loans, while TPG and Blackstone will acquire the remainder, a person briefed on the negotiations said. Representatives of TPG, Apollo and Blackstone declined to comment, as did a spokeswoman for Citigroup.
Take the Alltel saga as a prime example. The $27.5 billion deal was hammered out by TPG and Goldman Sachs' buyout arm, with the Goldman Sachs Group, Citigroup and RBS Greenwich as underwriting banks with about $17 million worth of leveraged loans and bonds supporting the deal. This was back in May 2007. Now, almost a year later, TPG is turning the tables, and buying back those same leveraged loans from Citi, at a loss to the banking giant. In short, TPG cleaned out Citi's clock coming and going.
End of the day, for Wall Street it's just a game of musical chairs - Just some paper being shuffled from TPG to Citi and back to TPG - Nothing to sweat about. Except for some lame-ass pension funds, who get saddled for every cent lost on the dollar.
The credit markets are thawing, and the credit crunch is over, and all that, while technically true, is basically a pile of hogwash here. What's important here, as usual, is the last line - Quarterly results on April 18th. At which time Citi is expected to announce $15.2 billion to $16.8 billion in write-downs, according to an independent research agency Creditsights.
And there's more. Additional information from the New York Times. In a twist, some of the debt the firms plan to acquire helped finance their own deals, like the buyouts of Harrah’s, Alltel and TXU. Loans that supported buyouts by other private equity firms, like the takeover of First Data by Kohlberg Kravis Roberts, are also expected to be included in the package. Apollo is expected to buy about half the loans, while TPG and Blackstone will acquire the remainder, a person briefed on the negotiations said. Representatives of TPG, Apollo and Blackstone declined to comment, as did a spokeswoman for Citigroup.
Take the Alltel saga as a prime example. The $27.5 billion deal was hammered out by TPG and Goldman Sachs' buyout arm, with the Goldman Sachs Group, Citigroup and RBS Greenwich as underwriting banks with about $17 million worth of leveraged loans and bonds supporting the deal. This was back in May 2007. Now, almost a year later, TPG is turning the tables, and buying back those same leveraged loans from Citi, at a loss to the banking giant. In short, TPG cleaned out Citi's clock coming and going.
End of the day, for Wall Street it's just a game of musical chairs - Just some paper being shuffled from TPG to Citi and back to TPG - Nothing to sweat about. Except for some lame-ass pension funds, who get saddled for every cent lost on the dollar.
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