Citigroup is close to concluding a deal to sell off $12 billion of leveraged loans and bonds at a discount rate to a group of private equity firms, as it moves towards clearing off soaring company debt.
The financial services company originally issued the debt to help finance the leveraged-buyout boom. After the credit crunch hit last year, demand for the risky bonds and loans dropped, leaving finance firms like Citigroup with billions of dollars in unwanted debt on their balance sheets.
Leveraged loans fell 5.74 percent in the first quarter, according to the S&P/LSTA Leveraged Loan Index, marking the worst quarter on record.
The deal is being worked out with private equity groups Apollo Group, TPG and Blackstone Group according to people familiar with the matter. Citigroup reported holding about $43 billion of the leveraged loans in its portfolio at the end of the fourth quarter.
The Citi portfolio includes loans used to finance acquisitions by Apollo, Blackstone and TPG, as well as debt in their rivals' deals.
Citi declined comment.
The tentative plan for the Citi leveraged loan portfolio will sell for an average price slightly below 90 cents on the dollar. Citigroup aims to finalize the deal before it releases its first-quarter earnings results on April 18, to put an upbeat outlook on what is expected to be a disappointing announcement.
Blackstone and TPG have recently set up funds to buy debt, while Apollo has already bought afflicted debt in the past.