On Thursday, Citigroup Inc. (C) sold 5-year senior notes worth $2.0 billion. The notes are not guaranteed by the Federal Deposit Insurance Corporation (FDIC).

The notes, which were issued at a discounted price of $99.495, are non-callable and are expected to yield about 325 basis points over U.S. Treasuries. They carry a coupon rate of 5.5% and will mature on October 15, 2014. The notes will pay coupons semi-annually with the first payment expected on April 15, 2010. The company will use the proceeds of the debentures for general corporate purposes.

Standard & Poor’s (S&P) has assigned an ‘A’ rating to the notes, while Fitch Ratings and Moody’s have assigned ‘A+’ and ‘A3′ rating to the notes, respectively.

Citigroup was the sole book-running manager for the sale.

The debt issue is in sharp contrast to the top-level management’s plans at Citigroup to downsize the U.S. government’s 34% stake in the company through a multibillion-dollar stock offering. Under the plan, Citigroup would issue new shares to the public and the Treasury Department would sell at least a portion of its Citigroup holdings. The debt issues may reinforce the perception that Citigroup still does not demonstrate adequate capital and liquidity, and hence will delay the sale of the government’s stake in the company.

Citigroup will release its third quarter 2009 earnings on October 15, 2009 with a conference call scheduled later in the day to discuss its results.

Ahead of its results, we maintain our Neutral recommendation on the stock.

Zacks Investment Research
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