Citigroup adds early, then eases in active trade; recent new issues quiet; Six Flags jumps

By Rebecca Melvin

New York, Dec. 17 - Citigroup Inc.'s newly priced 7.5% mandatory convertible preferred shares added early Thursday before easing back somewhat in active trade on its secondary market debut, sources said.

The $3.5 billion Citi deal - a major focus of the session - was said to have traded as high as 102 but was seen later at 100.125.

The preferreds "came in" later despite the common shares recovering some ground during the session. Investors were disappointed that Citi's $17 billion concurrent common stock offering priced at $3.15, representing a 9% discount to Wednesday's close. The common stock ended the session at $3.20, which was still down 25 cents, or 7.25%, at $3.20.

Wednesday's bumper crop of new issues was mostly quiet. Of the new paper, only a trade in Host Hotels & Resorts Inc.'s 2.5% convertibles was heard. The Host convertibles traded higher at 103.5 versus a share price of $11.00.

Other issues, including Titan International Inc.'s 5.625% convertibles and GenCorp Inc.'s 4.0625% convertibles, were quiet, sources said.

The convertibles of regional theme park operator Six Flags Inc. jumped 3 points to about 28 bid, 28.5 offered amid headlines that rival Cedar Fair LP has a deal to be taken over for a higher level than expected, pushing up valuation, a Connecticut-based sellside trader said.

Six Flags has been in Chapter 11 bankruptcy protection since June.

Overall, convertibles market trading was described as mixed the week before Christmas Eve, as equities sold off.

In a day where trading volumes were generally light, $16 million of Six Flags bonds traded ahead of the open, and it kept trading, a sellsider said.

Among top volume names, Amgen Corp., Medtronic and LDK Solar were the most active. Major stock indexes slid 1% Thursday, including the Dow Jones Industrial Average, which fell 133 points for its third straight loss. Treasury prices jumped.

The U.S. government reported an unexpected rise in unemployment claims. The number of new jobless claims rose to 480,000 last week, up 7,000 from the previous week.

Citi preferreds just over par

Citigroup's newly priced 7.5% mandatory convertible preferred shares traded early at 102. The paper was trading in the Street later in the day at about 100.5 and at the end of the session was reported at 100.125.

The New York-based financial services company's common stock settled at $3.20 on Thursday.

"It's come in a little bit," a New York-based sellsider said at mid-afternoon. "New issues tend to do that."

"It's a popular name. People are interested in it," the sellsider said.

Another sellsider said it was the focus of the day.

That was pretty much the focus, a sellside trader said when asked what was trading Thursday.

Citigroup priced $3.5 billion of three-year mandatory convertibles, known as tangible equity units, with a par of $100, priced to yield 7.5% with a 25% initial conversion premium, which was the rich end of talk.

The preferred shares are listed on the New York Stock Exchange under ticker symbol CPrH.

Citi also priced 5.4 billion common shares at $3.15 each.

The company noted that at a combined $20.5 billion the combined offering of common stock and tangible equity units is the largest public equity offering in U.S. capital markets history.

Proceeds will be used to repay $20 billion of TARP trust preferred securities and to terminate a loss-sharing agreement with the U.S. government.

The Treasury did not sell any of its shares. It had said it would sell up to $5 billion.

The tangible equity units are comprised of a prepaid stock purchase contract and a junior subordinated amortizing note. The stock purchase contract will settle on Dec. 15 for between 25.3968 and 31.7460 shares of Citi common stock.

The amortizing notes have a scheduled final installment payment date of Dec. 15, 2012. Citigroup has the right to defer installment payments at any time but not beyond Dec. 15, 2015.

Citigroup Global Markets Inc. was the bookrunner, with Morgan Stanley & Co. as co-manager.

The stock offering has a greenshoe for 809.5 million shares.

Six Flags adds 3 points

Six Flags' convertibles were quoted up in good volume to 28 bid, 28.5 offered, which was up about 3 points on the day.

Shares of the New York-based company, which trade over the counter, had jumped about 5% but settled little changed at 9 cents per share.

The boost was caused by a deal inked by Cedar Fair, owner of Kansas City's Worlds of Fun and Oceans of Fun, which looks to increase the value of such assets.

Cedar Fair agreed to be purchased for $2.4 billion by an affiliate of private equity firm Apollo Global Management. The deal amounts to $11.50 cash for each Cedar Fair limited partnership unit, which was a 28% premium over Cedar Fair's Dec. 15 closing price.

But the agreement has sparked an investigation over concerns that Cedar Fair board members breached their fiduciary duties to Cedar Fair shareholders. Levi & Korsinsky is investigating the board.

Six Flags filed for bankruptcy in June after failing to pull off an out-of-court deal to restructure its debt.

The company's debt has been pulled into trade recently by various headlines, including those regarding its bankruptcy case and a competing reorganization plan that would value the assets differently than the company's plan.

The company supports a plan backed by senior bondholders and their main booster, hedge fund Avenue Capital Group. The senior bondholders would end up with control of the company under the Avenue Capital proposal.

A separate group of investors, led by hedge fund Stark Investments, owns junior notes and proposed a plan at the end of November that would give them control. That set the stage for Friday's court battle.

Mentioned in this article:

Citigroup Inc. NYSE: C

GenCorp Inc. NYSE: GY

Host Hotels & Resorts Inc. NYSE: HIS

Six Flags Inc. NYSE: SIXFQ

Titan International Inc. NYSE: TWI

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