Citigroup launches exchange offers for preferreds, trust preferreds

By Angela McDaniels

Tacoma, Wash., June 10 - Citigroup Inc. said it is launching the previously announced exchange offers for its publicly held convertible and non-convertible preferred and trust preferred securities now that a definitive agreement with the U.S. government has been finalized.

The offers are scheduled to 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 the $20.5 billion cap after the regular preferreds are accepted.

Other offers

In addition, the company is offering interim securities and warrants in exchange for up to $12.5 billion private convertible preferreds held by investors other than U.S. government agencies, and the U.S. government will exchange up to $25 billion of its preferreds for interim securities and warrants and its remaining preferreds for trust preferreds.

The exchange offers for the publicly held preferreds and trust preferreds are conditioned on the closing of the exchange by the U.S. government and the private exchange offer.

If all holders of public preferred and trust preferred securities participate in the exchange offers, approximately $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 company said it is updating the prelimnary proxy statements previously filed with the Securities and Exchange Commission and will file the definitive proxy statements.

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.

Rights offering

Citigroup also announced that its board of directors adopted a tax benefits preservation plan to protect the company's ability to use certain tax assets.

As part of the plan, the board declared a dividend of one preferred stock purchase right for each outstanding share of common stock and interim securities. The dividend will be payable to holders of record as of the close of business on June 22, and shares of common stock and interim securities issued after that date will also receive rights.

The rights will be triggered if a person becomes an acquiring person as defined in the plan.

If triggered, each right entitles holders other than the person or group that triggered the rights to purchase the preferred stock at a 50% discount. Alternatively, the board may decide instead to exchange all or part of the exercised rights for shares of common stock.

The tax benefits preservation plan will be in effect for 36 months. It does not apply to U.S. government acquisitions of Citigroup common stock.

Citigroup is a financial services company based in New York.

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