Citigroup May Sell $12 Billion of Loans

Citigroup Inc. is in talks to sell $12 billion of loans at a loss to Apollo Management LP, Blackstone Group LP and TPG Inc. as part of an effort to shrink the bank's balance sheet, a person briefed on the matter said.

A sale to the private equity firms would shield the bank from further declines in the value of the debt, said the person, who declined to be identified because the negotiations are private. The loans are part of the $43 billion in financing Citigroup agreed to provide for leveraged buyouts last year before credit markets froze, saddling the company with the hard- to-sell assets.

Citigroup shares have plunged 19 percent this year, partly on concern that writedowns of leveraged loans might compound $24 billion of losses the New York-based bank has taken so far on mortgages and bonds that have tumbled in value. Chief Executive Officer Vikram Pandit is shedding high-risk holdings on the bank's $2.2 trillion balance sheet.

As a Citigroup investor you won't have to worry about more mark-to-market writedowns on these loans, said William B. Smith, senior portfolio manager at Smith Asset Management in New York, which oversees about $80 million, including about 66,000 Citigroup shares. There's now a consortium of private-equity firms saying what they're worth.

Daniel Noonan, a Citigroup spokesman, declined to comment, as did Apollo spokesman Steven Anreder and Blackstone spokesman Peter Rose. TPG didn't return messages seeking comment.

$200 Billion Logjam

The leveraged loan market seized up last year after losses on mortgage bonds prompted fixed-income investors to shun assets deemed risky. Leveraged loans are made to companies with credit ratings below investment grade, meaning they're considered by Moody's Investors Service and Standard & Poor's to carry a higher risk of default.

Citigroup is planning to complete the loan sale to Apollo, Blackstone and TPG as soon as next week, when the bank reports first-quarter results, the person briefed on the talks said. The deal may help clear the $200 billion logjam of unsold loans, said Chris Taggert, an analyst at research firm CreditSights Inc. in New York. Money managers who have raised funds to invest in distressed debt are striking deals with Citigroup and other banks now eager to unload them, he said.

It would definitely raise loan prices given that large- scale buyers are stepping in, Taggert said.

Record Low

Apollo, Blackstone and TPG stand to profit if demand for the loans pushes prices above Citigroup's discounted sale price, which may be about 90 cents on the dollar, the Financial Times reported earlier today. Apollo and Blackstone, which manages the world's biggest buyout fund, are based in New York. TPG, based in Fort Worth, Texas, led a group that bought a $7 billion stake today in Washington Mutual Inc., the largest U.S. savings and loan.

The most actively traded leveraged loans, which fetched 100 cents on the dollar as recently as last June, fell to a record low of 86.28 cents in February, according to Standard & Poor's. Prices have since rebounded to 90.14 cents as banks reduced their backlog of unsold loans.

Pandit is poised to dispose of more than $200 billion of the company's assets, which increased by almost $700 billion from 2005 through 2007. Since he succeeded Charles O. Chuck Prince in December, Pandit has been whittling down Citigroup's inventory of leveraged loans and high-yield bonds while balking at financing pending deals. Under U.S. accounting rules, Citigroup must record losses when the market value of the buyout loans on its balance sheet falls.