Citi Raises $3B from Notes Sale - Analyst Blog

Citigroup Inc. (C) sold $3 billion of notes earlier this week. The company conducted the sale in two parts. The first tranche was $2.25 billion of new notes due on August 9, 2020, with a coupon rate of 5.375%. The second tranche was of $750 million, consisting of the reopening of notes due May 19, 2015, and carrying a coupon rate of 4.75%. This second tranche exceeded the initial planned size of $500 million.

 

Citi would use the proceeds for general corporate purposes. These include the financing of its operating units and subsidiaries, acquisitions and refinancing or extending the maturity of existing debt obligations. A part of it may also be used for hedging its exposure to payments. The sole bookrunning manager for the sale was Citigroup Global Markets.

 

In addition to Citi, PNC Financial Services Group Inc.’s (PNC) subsidiary, PNC Funding Corp., has also raised $750 million by selling senior notes this week. The notes carry a coupon rate of 4.375% and mature on August 11, 2020. The notes’ offering size exceeded the initially planned $500 million. Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) are the lead managers while PNC Financial and Morgan Stanley (MS) are the co-managers for this offering.

 

Last month, Citi reported its second quarter earnings of 9 cents per share, ahead of the Zacks Consensus Estimate of 5 cents. Results reflect an improvement in the credit quality and lower loan loss provisions. Yet, the market declines negatively impacted the revenues from its trading business in the quarter.

 

Citi continues to strengthen its balance sheet and initiates certain restructuring measures. However, we also believe that the shrinking of its business through assets sale and the CARD Act would pose challenges.

 

Nevertheless, Citi’s core business, Citicorp, remains attractive. Its global footprint would help its earnings and make up for losses in other areas. However, the stake sale by the Treasury would provide short-term volatility to the stock price.

 

Citi is currently rated as Zacks #3 Rank (Hold), implying no clear directional pressure on the stock over the next one to three months. The stock is also rated Neutral in the long term.