Citigroup Inc.’s $6-billion offering of “hybrid” bonds — the largest public debt offering ever for Citi, according to Bloomberg News — has one nice feature in that it won’t dilute its stockholders’ positions.
The struggling financial services giant said in a regulatory filing that the offering was at a fat, fixed rate of 8.40 percent for the first 10 years. After that, it will pay a floating rate.
Bloomberg pointed out that hybrid bonds and preferred shares, which resemble debt and equity, count toward capital reserves, but don’t dilute equity investors. The wire service further noted that hybrids generally permit issuers to defer interest payments without defaulting, and credit-rating companies usually consider the bulk of the money raised as equity. As a result, only a portion is counted as debt on the issuer’s balance sheet, Bloomberg notes.
Indeed, Merrill Lynch is currently peddling at least $300 million of preferred shares at 8.625 percent while last week JPMorgan Chase & Co. raised $6 billion after offering 7.9 percent hybrid bonds, its largest sale of the securities, according to Bloomberg.
Citigroup has raised more than $30 billion in capital since November, Bloomberg calculated.
On Monday, Citi declared a 32 cent per share dividend on its common, unchanged from its recently pared level.
Also on Monday, however, Oppenheimer & Co. analyst Meredith Whitney predicted that Citi would cut its dividend again later this year.