PrefBlog

Bloomberg reports that Citigroup is about to offer a new issue of TruPS:

The 30-year fixed-to-floating rate securities may initially yield about 8.875 percent, according to a person familiar with the offering who declined to be identified because terms aren’t set. Citigroup plans to issue as much as $2 billion of the securities as soon as tomorrow, another person said.
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Citigroup’s $2.35 billion of 8.3 percent fixed-to-floating bonds due in 2057 rose 1.4 cent to 96.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The hybrid debt has more than tripled in price in the last year from 30.5 cents, Trace data show.

What makes this interesting is a novel (to me!) clause in the prospectus:

On December 17, 2009, the Basel Committee on Banking Supervision (“Basel”) proposed, among other proposals, revisions to its definition of Tier 1 capital for banks. Provided certain other conditions more fully described in “Description of the Capital Securities — Special Event Redemption” below are satisfied, the adoption of, or announcement of intent to adopt, Basel’s revised definition of Tier 1 capital by the Capital Regulator could qualify as a Regulatory Capital Event (as defined herein) that would permit Citigroup Capital to redeem the capital securities.
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This prospectus refers to a Tax Event, an Investment Company Event or a Regulatory Capital Event as a “Special Event.” Provided that Citigroup obtains any required regulatory approval, if a Special Event occurs and continues, Citigroup may, upon not less than 30 nor more than 60 days’ notice, redeem the junior subordinated debt securities, in whole or in part, for cash within 90 days following the occurrence of such Special Event. Following such redemption, trust securities with an aggregate liquidation amount equal to the aggregate principal amount of the junior subordinated debt securities so redeemed shall be redeemed by Citigroup Capital at the redemption price on a ratable basis. If, however, at the time there is available to Citigroup or Citigroup Capital the opportunity to eliminate, within such 90-day period, the Special Event by taking some ministerial action, such as filing a form or making an election or pursuing some other similar reasonable measure that will have no adverse effect on Citigroup Capital, Citigroup or the holders of the trust securities, then Citigroup or Citigroup Capital will pursue such measure instead of redemption and provided further that in the case of a Regulatory Capital Event, where a result of which is that only a portion of the capital securities will not qualify as Tier 1 capital of Citigroup, Citigroup may redeem an amount of junior subordinated debt securities up to the amount that corresponds to the capital securities that would no longer qualify as Tier 1 capital as a result of such Regulatory Capital Event.

The December 17 proposal has been reported on PrefBlog. The sticking point in the proposed revisions is, I believe, Criteria for inclusion in Tier 1 Additional Going Concern Capital #4:

Is perpetual, ie there is no maturity date and there are no incentives to redeem

whereas the prospectus states:

The capital securities have no stated maturity date but will be redeemed upon the maturity of the junior subordinated debt securities, or earlier on the dates and to the extent the junior subordinated debt securities are redeemed. See “Description of the Junior Subordinated Debt Securities — Optional Redemption.” The junior subordinated debt securities will mature on , 2040, and may be redeemed, in whole or in part, at any time on or after , 2015 at a redemption price equal to 100% of the principal amount being redeemed, plus accrued and unpaid interest through the date of redemption. The junior subordinated debt securities can also be redeemed at any time, in whole or in part, in certain circumstances upon the occurrence of a Tax Event, an Investment Company Event or a Regulatory Capital Event (each as defined below) at a redemption price equal to 100% of the principal amount being redeemed, plus accrued and unpaid interest through the date of redemption.

If then required, Citigroup will obtain the concurrence or approval of the Capital Regulator before exercising its redemption rights prior to the maturity date Upon the maturity of the junior subordinated debt securities, the proceeds of their repayment will simultaneously be applied to redeem all outstanding trust securities at the redemption price. Upon the redemption of the junior subordinated debt securities, whether in whole or in part, either at the option of Citigroup or pursuant to a Tax Event, an Investment Company Event or a Regulatory Capital Event, Citigroup Capital will use the cash it receives upon the redemption to redeem trust securities having an aggregate liquidation amount equal to the aggregate principal amount of the junior subordinated debt securities so redeemed at the redemption price. Before such redemption, holders of trust securities will be given not less than 30 nor more than 60 days’ notice. In the event that fewer than all of the outstanding capital securities are to be redeemed, the capital securities will be redeemed on a ratable basis as described under “— Book-Entry Only Issuance.” See “— Special Event Redemption” and “Description of the Junior Subordinated Debt Securities — Optional Redemption.” If a partial redemption of the capital securities resulting from a partial redemption of the junior subordinated debt securities would result in a delisting of the capital securities, Citigroup may only redeem the junior subordinated debt securities in whole.

The Capital Securities are what’s being sold to the public; the Junior Subordinated Debt Securities are what the vehicle holds to secure payments to the Capital Security holdes (i.e., this is a loan-based IT1C).

Update: Whisper yield cut to 8.5%:

The bank plans to issue $2 billion of the securities, known as TruPS, as soon as today, according to a person familiar with the offering who declined to be identified because terms aren’t set. The 30-year fixed-to-floating rate securities may initially yield about 8.5 percent, lower than the 8.875 percent expected yesterday, another person said.

Penny Algorithms are automated trade entry systems that will improve the posted quote of a security by a penny.

They’ve been mentioned on PrefBlog several times:
GAndreone:

In addition I find that order placed via my discount broker sometimes are overtaken by “trading robots”. That is, a buy order places at lets us say 1 cent above the highest order showing on level 2 quotes never makes the top of the list. A new smaller order appears at 1 cent above the order just placed. If you remove the order the smaller order also disappears.

Annette:

Are those orders “automatized” or is there a trader watching all day long the stock? As soon as you buy the 2, 5 or 10 lots where the iceberg lies, it is almost immediately topped off with more lots. I sometimes play with it putting a bid one cent lower (sell order) or higher (buy order) to see it going almost immediately one cent in front of me. It will better me up to a certain point. I witdraw mine it goes back to where it was. I sometimes suspect it is one of you guys playing games.

I am currently engaged in a dispute regarding the very existence of penny algorithms for preferred shares (arising from an article on Pegged Orders that is now in preparation), and ask that those who notice one in operation for the next week or so either eMail me or tell me about it in the comments.