Blackstone and the Sale of Citigroup's Loan Portfolio

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BLACKSTONE
AND THE SALE OF
CITIGROUP’S
LOAN
PORTFOLIO

Market Conditions (I)

• Corporate credit expansion in the U.S. between 2001 and the first half of 2007 was driven almost exclusively by the inflow of institutional (non-bank) funding into the syndicated loan market.
• The participation of a wide range of institutional investors
(including structured funds known as collateralized loans obligations (CLOs), hedge funds, mutual funds, pension funds, and insurance companies) in the corporate loan market was facilitated by loan syndication.
• In general, institutional investment in loans tended to concentrate in the leveraged segment of the market; i.e., loans to non- investment-grade firms or non-rated firms with high committed or
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1. Why is Citigroup seeking to sell the portfolio of leveraged loans? (IV)

Why might it make sense for Citigroup to SELL this loan portfolio? Table A Average Credit Statistics for Large Corporate Buyouts

Year

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Debt/EBITDA

5.83

4.89

4.31

4.11

4.05

4.65

4.93

5.37

5.49

4.9

4.02

Senior Secured Debt/EBITDA

3.51

3.31

3.34

2.75

2.56

2.87

3.31

4.11

4.66

4.14

3.40

EBITDA/Cash Interest

1.97

2.23

2.25

2.67

3.17

3.11

3.37

2.6

2.3

2.87

2.51

(EBITDA-CAPEX)/Interest

1.12

1.57

1.53

2.02

2.37

2.5

2.57

1.99

1.85

2.22

2.34

Covenant-lite volume ($ billion) 3.14

0.3

0.26

0.02

0.00

0.46

0.07

2.43 23.62 95.56

2.55

1. Why is Citigroup seeking to sell the portfolio of leveraged loans? (V)

Why might it make sense for Citigroup to SELL this loan portfolio? • Banks would normally be able to absorb a few billion dollars of bridge loans on their balance sheet BUT the issue lies in the systemic nature of the underwriting risk.
• In 2008, banks were under pressure to sell the assets on their books more broadly.
• Like many others, Citigroup had suffered unprecedented losses and write-downs and was facing the prospect of having even more considerable losses. (See Case pp. 2-3.)
• Because bridge loans are not intended to be

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