View Full Version : Citi offering loans in order to sell...loans???

10-04-07, 07:44 AM
Somebody needs to explain this one to me...

Let's see if I understand what's going on here:

Banks like Citi overextended themselves offering loans to PE firms for leveraged buyouts;
Banks like Citi are unable to securitise these loans and get them off their balance sheets (so they can then get back to the business making new loans);
Banks like Citi are now trying to sell these loans to PE firms and hedge funds;
Banks like Citi are being asked to provide...loans...to the PE firms and hedge funds in order to sell....loans...to the PE firms and hedge funds.All I can say is I'm sure glad I'm not a banker. I am sure if I re-read this article enough times it will all become clear... :rolleyes:

Citi talks to KKR about leveraged debt
By David Wighton in New York and Martin Arnold in London
Published: October 3 2007 22:05 | Last updated: October 4 2007 00:46

Citigroup (http://mwprices.ft.com/custom/ft2-com/html-quotechartnews.asp?FTSite=FTCOM&q=C&searchtype&expanded=&countrycode=us&s2=us&symb=C&company=NEW)is in talks with KKR to provide financing to buy some of the leveraged loans on its balance sheet. It has also talked to other private equity firms about providing such funding...

...Banks have been looking for ways to help clear some of the $300bn worth of leveraged loan commitments they have made but are struggling to sell on to investors following the credit turmoil.

The talks with KKR’s asset management arm have brought together the private equity firm responsible for some of the biggest leveraged buy-outs in the run-up to the credit freeze and the investment bank that agreed to provide the financing for many of the deals.

Investors, including private equity firms, see opportunities to snap up loans, while traditional buyers are cautious. KKR is raising money for an existing hedge fund to buy leveraged loans and other impaired debt. A number of banks, including Lehman Brothers, are raising special-purpose vehicles to buy leveraged debt.

The new investors are keen to gear up on their purchases and have asked banks such as Citi to provide financing....

Link to full article:

Postscript: The article states these loans have "proven difficult to structure". Can't possibly imagine why...

10-04-07, 04:30 PM
Well, the clue is they never (read that again: never) expected to take that stuff on balance. More even so with ABCP.

The reason why they need to get rid of these loans asap is they dont have enough capital to support them, while providing external liquidity is a zero sum game, they got to fund it anyways now. Worse capital ratios might trigger a rating downgrade. (They might opt to sell the loans with a haircut, but that will get some ppl fired on the earnings impact.)

Seems to me KKR et al are in a similar position here, not beeing able to get the full loans for their own buyouts from the same banks. So, there is probably bargainig going on, you guys give me more funding and i help you out. Looks like a win-win, doesnt it ? The wildcard is the sheer amount of loans, can they really switch it all ? I dont know that, but 300bn is a lot.

In the end, it should impact banks earnings in one way or the other and you should see worse capital ratios for some.

10-04-07, 06:35 PM
Banks like Citi are being asked to provide...loans...to the PE firms and hedge funds in order to sell....loans...to the PE firms and hedge funds.

Its private.


Goldman Sachs Group Inc., the largest and most profitable U.S. securities firm, and Lehman Brothers Holdings Inc., the fourth-biggest, are each seeking about $2 billion to buy loans, according to investors who asked not to be identified because the fund raising is private. New York-based Kohlberg Kravis Roberts & Co., the buyout firm run by Henry Kravis and George Roberts, is putting together a $2.5 billion fund, four investors said.
Funds managed by Goldman and Lehman, both based in New York, may end up buying loans their firms made, and KKR may invest in debt used to finance its own LBOs, the people said.
Buyout firms, which typically acquire companies using debt for at least two-thirds of the purchase price, announced a record $613 billion of deals in the first half of the year, data compiled by Bloomberg show. The flow slowed to $167.4 billion since then as banks stopped providing credit until they sell loans already on their books.
Discounts Offered
The loans are typically below investment grade, or rated less than Baa3 by Moody's Investors Service and BBB- by Standard & Poor's.
``The private-equity firms and banks may have more motivation to set up funds so the banks can offer financing to do more deals,'' said Martin Fridson, chief executive officer of FridsonVision LLC in New York, a high-yield debt research firm.
Officials at Oaktree, Eaton Vance, Goldman, Lehman and KKR declined to comment.
Banks are cutting prices to get loans off their books. New York-based Citigroup and a group of investment banks sold $1 billion of loans for automotive-supplier Allison Transmission at 96 cents on the dollar on Sept. 11 and found investors for an additional $500 million at 96.5 cents last week. The banks still hold $2.5 billion of the Indianapolis-based company's debt.
Citigroup, Zurich-based Credit Suisse, Frankfurt-based Deutsche Bank and Merrill Lynch & Co. of New York sold $9.4 billion of loans yesterday for KKR's $29 billion acquisition of Greenwood Village, Colorado-based First Data Corp., the largest processor of credit payments, according to people with knowledge of the transaction.
Sale Doubled
The sale included $7.6 billion of debt at 96 cents on the dollar and $1.8 billion at 97 cents. While the sale was almost double the amount the banks planned last week, they must still find buyers for $9 billion of bonds.
More leveraged debt may be offered in coming weeks as some of the biggest buyouts seek funds.
Citigroup, Goldman, Lehman, New York-based JPMorgan Chase & Co. and Morgan Stanley are financing the largest U.S. LBO, KKR and TPG Inc.'s $32 billion purchase of Dallas-based power producer TXU Corp. Banks led by Citigroup are behind Goldman and TPG's $27.7 billion buyout of wireless provider Alltel Corp. TPG, run by David Bonderman, is in Fort Worth, Texas.
Banks agreed to terms for deals such as First Data and TXU in the first half of this year, before defaults on mortgages by borrowers with patchy credit histories caused credit markets to dry up.
Sankaty, Onex
``The banks are holding transactions negotiated during an enormously liquid market,'' said Howard Tiffen, who oversees $10.5 billion of loans at Morgan Stanley Investment Management in Oakbrook Terrace, Illinois. The debt may turn out to be profitable investments, he said.
Investors said other firms opening funds include Boston- based Sankaty Advisors LLC, a fixed-income affiliate of private- equity firm Bain Capital LLC, which raised more than $1 billion; Lake Forest, Illinois-based Z Capital Partners LLC, which gathered $500 million; Ore Hill Partners LLC in New York, which brought in $450 million; and Arx Investment Management LP, a New York-based hedge-fund manager.
Officials at the firms declined to comment.
Executives of Onex Corp., Canada's largest buyout company, said on a Web cast with investors yesterday that after seeing loans being sold at discounts, they decided it was time to form a credit fund.
``Value investors smell opportunity,'' said Scott Page, co- manager of Eaton Vance's bank loan funds. ``These were the deals left standing when the music stopped, they are not toxic waste.''

10-05-07, 02:50 AM
Its private.


Not completely.

Having exposed his shareholders to what has proven an unacceptable level of risk while the music was still playing during the latter stages of the biggest credit bubble in human history, Chuck "Mr. Bojangles" Prince, is now entertaining exposing his shareholders to the same credits he is moving off Citi's balance sheet at a discount.

It's sure seems something malodorous is emanating from 399 Park Avenue... :(