The proposed amendments would delete certain restrictive covenants from the indenture governing the Notes that presently restrict the ability of (i) the Company to incur liens and security interests on its properties and assets and to enter into sale and lease-back transactions; (ii) the Company’s unrestricted subsidiaries to become restricted subsidiaries; and (iii) the Company to merge or consolidate with or into any other person or transfer all or substantially all of its assets to any other person unless certain conditions are satisfied.Seems like things at the Nashville company are getting worse by the day.
Citigroup’s 10-K filing makes it clear why regulators appear committed to (or perhaps are stuck with) a strategy of supporting the full capital structure (including holding company debt), rather than subjecting the bank to the Lehman treatment. Citigroup has a daunting $1.9 trillion of assets on the balance sheet alone (not counting off-balance sheet exposure). The balance sheet is essentially supported by an uneasy alliance between the U.S. government and the company’s depositors and other creditors, since the market value of the equity is so depressed. Deposits totaled $774 billion at year end, including nearly $500 billion outside the U.S. In a liquidation of a U.S. insured depositary institution, the 10-K notes that U.S. deposits would have priority over deposits outside the U.S., as well as over parent company claims. But we can’t imagine the new administration will want to precipitate an international crisis over whose-deposits-get-paid-off-first. There is $360 billion of long-term debt, including about $24 billion of TruPS-related junior subordinated debt and $34 billion of subordinated debt. At year-end, parent company liquidity, including unencumbered cash deposits at the broker-dealer, totaled $67 billion. But no cash hoard would be big enough right now, without the support of Uncle Sam. Investors are worried (with good reason) about the risk for more markdowns of loans, securities and the deferred tax asset ($44.5 billion). Moody’s lowered Citigroup’s senior and subordinated debt ratings last week, but left the short-term rating at P1 (under the assumption that “systemic support” is “most predictable” for short-term debt.) A downgrade in the C.P. rating would trigger an $11 billion funding requirement. As we discussed last week (see report dated 2/24/09), we see value in Citigroup’s senior debt (although the 5.5% notes due 2013 have tightened to T+604 from T+752 a week ago.Sphere: Related Content
The most flagrant abuser of conflicts of interest in the current economy, PIMCO (relax, relax, we jest), has just gotten its tentacles even more entangled with the rotor of the government's economic shredder. Reuters reports Bill Gross has been hired to advise the U.S. government on the $118 billion of assets guaranteed in the Bank of America bailout. Pimco will be responsible for "evaluating Bank of America's holdings, including securities backed by residential and commercial loans, to help determine the company's losses."
Talk about the captain staying with the sinking ship.... or not...The man only became CEO a mere 6 months ago. Guess when comp is capped at or around $1 in perpetuity nobody, not even former Carlyle Group senior advisors, have much of an incentive to stay and watch the mushroom cloud.MCLEAN, Va., March 2 /PRNewswire-FirstCall/ -- Freddie Mac (NYSE: FRE) today announced that its chief executive officer, David Moffett, has notified the chairman of the board of directors of his resignation from his position as chief executive and as a member of the board effective no later than March 13, 2009. The board of directors is working with the Federal Housing Finance Agency (FHFA) to appoint a successor to Moffett.
Moffett indicated that he wants to return to a role in the financial services sector. In his letter of resignation, he said, "I have enjoyed my time as CEO of Freddie Mac and I wish all the great employees the very best in the days to come."
It is good that at least one person has enjoyed Moffett's time as CEO of Freddie Mac, even it is him. Some more from the release:
Sphere: Related ContentJohn Koskinen, chairman of the board, said, "We are very sorry to see David go. He made valuable contributions to Freddie Mac as the company transitioned into conservatorship." Koskinen also said, "We expect to name an interim CEO before March 13 to assume David's responsibilities once he leaves." He added, "The board remains fully committed to ensuring the company continues its critical role in supporting the housing finance system during this difficult economic period."
Management continues to estimate that FHFA, in its capacity as conservator of Freddie Mac, will submit a request to Treasury to draw an additional amount of approximately $30 billion to $35 billion under the Senior Preferred Stock Purchase Agreement between Freddie Mac and Treasury, following the timely filing of the company's annual report on Form 10-K with the Securities and Exchange Commission.
Much has been written about the staggering losses of Saudi Prince Alwaleed Bin-Talal in Citi's common stock. The amount of money he has dropped on Pandit's titanic may have easily funded GM's operations.... for about a day. Now as preferred shareholders have joined the fray of impaired parties, other investor higher in the capital structure are starting to feel Geithner's flamethrower. Enter the Abu Dhabi Investment Authority or ADIA as it is better known. News just out of Reuters that Abu Dhabi's sovereign wealth fund, which just happens to be the largest of its kind in the world, is nervous about its $7.5 billion 11% Citi convertible bond investment. The bonds begin converting in March 2010, and through September 2011, ADIA is set to receive 235.6 million shares, at a conversion price between $31.83 and $37.24. Seeing how Citi's common closed at $1.50, ADIA managing director Sheikh Ahmed bin Zayed al Nahyan must be depressed about his prospects of breaking even on this investments any time soon if ever. Granted, ADIA will likely not lose too much sleep over this loss - the sovereign wealth fund which recently completed and moved into the tallest skyscaper in Abu Dhabi (insert), had about $850 billion in its portfolio. However with oil dropping from $120 to $30, with or without USO's shennanigans, even the real masters of the petrouniverse must be scratching their beards..."Nothing has changed from ADIA's perspective at this point. ADIA's convertible bonds are due for conversion in a phased manner between March 2010 and September 2011, and that stands," an Abu Dhabi government official told Reuters. "But it is carefully assessing its options due to the latest events -- although no decision is taken yet," he said, declining to be named.Ironically, instead of waiting to see the notes thru their conversion, the fund may decide to convert early making a potential full-blown nationalization even more politically charged, due to ADIA's extended web of investments in a plethora of U.S. companies and GSEs. The last thing Geithner can afford is to anger such a huge investing partner as ADIA, and by implication it neighboring sovereign wealth funds of countries such as Kuwait, Qatar, Dubai, and Saudi Arabia (for a list of all the major sovereign wealth funds, click here). The real concern should be for other convertible (and potentially higher up in the capital structure securities), who unlike ADIA can ill afford to lose out on their heretofore considered safe investments.
"We know ADIA is following the recent developments closely, but as a bondholder, ADIA's investments are secure because the U.S. government has left bond holders untouched, unlike other investors such as preferred shareholders," a senior Abu Dhabi-based banker close to ADIA said."Indeed, what is becoming more and more obvious, is that while the government is unlikely to wipe out the common stock tranche in Citi and other banks ever (which would be de facto nationalization and by implication a failure of a "too big to fail" bank, which Geithner will simply not allow per Lehman bankruptcy consequences), it will continue a forced creeping dilution of higher and higher tranches of the balance sheet into Citi common stock. Yesterday the preferred, today the convertible stock, tomorrow unsecured and lastly secured bonds. At some point the common may actually be worth something fundamentally, regardless of squeezes and other contraptions. We can only hope that in the process Geithner does not royally anger someone really important along the way as he forces stakeholders to convert into chunks of more and more diluted common stock. The other implication is that holders of higher tranches of Citi securities will follow in the preferred's footsteps and commence shorting against their long holdings in advance expectations of equitization. This further increases the likelihood that every fund and their grandmother will soon be short Citi common, and while a Volkswagen outcome is never a certainty, six sigma events just happen to occur on a daily basis lately. Sphere: Related Content
However, it is early days, and we need to wait and see what ramifications the latest events would have and whether there would be pressure on investors in bonds to convert (early)," he said.
Citi, he said, has been urging preferred shareholders and convertible bond holders to convert to common stock to help avoid nationalization by the U.S. government.
When the execs of the biggest banks came to congress two weeks ago to be on the wrong end of some populist lynching, one of the questions asked was how much money had the banks earned by collecting underwriting fees by issuing FDIC-backed bank bonds, i.e. debt in which there is no risk. Intuitively this is a great question, as underwriters collect fees only when there is exposure risk, essentially they are paid to find buyers for a risky issue in which they are the primary purchasers. If there is no implicit risk, as in when they are issuing government backed debt and the bank is merely a pass thru of a government guarantee, it is mindboggling that banks should be compensated for this form of "underwriting."
The London Interbank Offered Rate floor on the interest rate AIG pays on the government's credit line is expected to be removed under the new terms, which would save the insurer about $1 billion a year, the source said. The company currently pays 3 percentage points above Libor.And people were complaining about Citi's "no new equity" bail out. It is a nebulla wrapped in a quasar inside a black hole to predict how the market will react to this on Monday. Sphere: Related Content
AIG will also give the U.S. Federal Reserve ownership interests in American Life Insurance (Alico), which generates more than half of its revenue from Japan, and Hong Kong-based life insurance group American International Assurance Co (AIA) in return for reducing its debt, the source said.
