SEC Company Response from CITIGROUP INC (C, C-PN) (CIK 0000831001) (C) — Apr 27, 2012
CITIGROUP INC (C, C-PN) (CIK 0000831001)
Date: April 27, 2012 · CIK: 0000831001 · Accession: 0000950103-12-002225
AI Filing Summary & Sentiment
File numbers found in text: 333-172554
Referenced dates: April 12, 2012
Letter
Via EDGAR and E-Mail Office of Capital Markets Trends Division of Corporation Finance Citigroup Funding Inc. 424 Prospectuses relating to Registration Statement on Form S-3 Filed March 2, 2011 File No. 333-172554
Dear Ms. Starr:
Citigroup Inc. (“Citi”), as the parent company of Citigroup Funding Inc. (“CFI”) and the guarantor of structured notes issued by CFI from time to time from the above-referenced registration statement (“Notes”), is providing this letter in response to your comment letter dated April 12, 2012 relating to the Notes. We continually assess our disclosures in connection with the offering of Notes and appreciate the opportunity to work with you in this regard.
As previously discussed with you, this letter contains responses to all comments other than comment 2 in your comment letter. We will separately provide information in response to comment 2.
For reasons of business confidentiality, in a separate letter dated the date hereof and enclosed herewith, we requested that information in this letter in the second paragraph of our response to your comment 8 not be disclosed in response to any request made under the Freedom of Information Act (5 U.S.C. § 552) or otherwise. Accordingly, pursuant to Rule 83 of the Rules on Information and Requests (17 C.F.R. § 200.83) of the Securities and Exchange Commission (the “Commission”), a complete copy of this letter will be provided only in paper form and not electronically as correspondence under the Commission’s EDGAR system. Omitted information has been replaced in this letter as filed via the EDGAR system with a placeholder identified by the mark “[***].”
CONFIDENTIAL TREATMENT REQUESTED BY CITIGROUP INC.
For your convenience, the text of each of your comments is set forth in bold below, followed by our response.
Product Names
1.
The staff in the Division of Corporation Finance has previously indicated that note titles using the term “principal protected” should also include balanced information about limitations to the principal protection feature. We believe this concern regarding potential confusion over the titles of securities may exist for note titles across various product categories. Issuers should evaluate the titles used for their different types of structured notes and should revise to clearly describe the product in a balanced manner and avoid titles that stress positive features without also identifying limiting or negative features.
In accordance with prior guidance from the staff, we no longer use the term “principal protected” in any of our Note titles. We evaluate the titles of our Notes on an offering-by-offering basis to ensure that they clearly identify the particular type of Note offered in a balanced manner, and we will continue to do so in future offerings with this comment in mind.
Product Pricing and Value
2.
We note that issuers of structured notes often include disclosure, including in risk factors, explaining that the value of the notes at issuance and/or the price that the affiliate would pay for the notes in the secondary market, assuming no change in market conditions, will be less than the public offering price. In order for investors to be able to understand the relationship of the note purchase price to its fair value (as estimated by the issuer or its affiliate) and potential secondary market prices, we believe issuers should consider prominently disclosing the difference between the public offering price of the note and the issuer or its affiliate’s estimate of the fair value of the note or discuss with us the reasons such disclosure should not be provided. Issuers also should consider identifying the specific amounts being paid from the note proceeds for costs and expenses.
As previously discussed with you, we will separately provide information in response to this comment 2.
3.
We have observed that some issuers of structured notes or their affiliates will, for a limited period of time immediately following an offering, use values on account statements or provide repurchase prices to customers at levels that temporarily exceed the issuer’s or affiliate’s own estimate of the fair value of the product. Further, we understand that after a given period of time such values and prices will be readjusted to better reflect the issuer’s or affiliate’s own estimate of the fair value of the product. If applicable, we ask that you disclose, including in risk factor disclosure as appropriate, your usage of different values and prices in this manner and explain the potential impacts on post-offering pricing, valuation, and trading.
CONFIDENTIAL TREATMENT REQUESTED BY CITIGROUP INC.
Citigroup Global Markets Inc. (“CGMI”), the affiliated broker-dealer and underwriter for many of CFI’s Note offerings, provides values for the Notes that appear on customer statements. Those values are CGMI’s then-current indicative bid levels, which are an indication of what CGMI would pay its customers if they were to request a bid from CGMI for their Notes. CGMI believes these indicative bid values are the appropriate available values for customer statements, given the general absence of an observable secondary market for the Notes.
CFI’s offering documents for the Notes clearly disclose that the amount CGMI may bid for the Notes in the secondary market may differ from pricing models used by CGMI. These pricing models use assumptions and estimates made by CGMI. A typical risk factor used by CFI states:
[A]ssuming no change in market conditions or any other relevant factors, the price, if any, at which Citigroup Global Markets is willing to purchase the securities in secondary market transactions will likely be lower than the issue price, since the issue price will include, and secondary market prices are likely to exclude, underwriting fees paid with respect to the securities, as well as the cost of hedging our obligations under the securities. The cost of hedging includes the projected profit that our affiliates may realize in consideration for assuming the risks inherent in managing the hedging transactions. The secondary market prices for the securities are also likely to be reduced by the costs of unwinding the related hedging transactions. Our affiliates may realize a profit from the expected hedging activity even if investors do not receive a favorable investment return under the terms of the securities or in any secondary market transaction. In addition, any secondary market prices may differ from values determined by pricing models used by Citigroup Global Markets, as a result of dealer discounts, mark-ups or other transaction costs.
In light of this comment 3, we propose to supplement our existing disclosure with disclosure substantially as follows:
For a limited period of time immediately following issuance of the securities, the price at which Citigroup Global Markets may be willing to purchase your securities (if it is willing to do so at all) and the value that Citigroup Global Markets or its affiliates will indicate for your securities on brokerage account statements will likely exceed the estimated value of your securities determined by pricing models used by Citigroup Global Markets, which use assumptions and estimates made by Citigroup Global Markets to generate a theoretical price for the securities. The excess relates to an amortization of projected hedging profits and other transaction costs associated with managing related hedging transactions, as estimated by Citigroup Global Markets or its affiliates, subject to adjustment for the factors described in clauses (i) through (iv) below.
CONFIDENTIAL TREATMENT REQUESTED BY CITIGROUP INC.
Such amortization will be over a period determined by Citigroup Global Markets, which will generally not exceed six months. After the end of this period, the price at which Citigroup Global Markets may be willing to purchase your securities (if it is willing to do so at all) and the value of your securities indicated on brokerage account statements will be consistent with the value determined by pricing models used by Citigroup Global Markets, adjusted for (i) our credit risk (to the extent not already included in the pricing model), (ii) the expected cost of unwinding the related hedging transactions, (iii) liquidity in the actual market (if any) for the securities or similar securities and (iv) a customary bid-ask spread. However, you should understand that Citigroup Global Markets is not obligated to purchase your securities for any price at any time.
For more information on CGMI’s pricing model, please refer to our response to comment 8 below.
Use of Proceeds and Reasons for Offerings
4.
Issuers often provide disclosure explaining that they will use the proceeds of a structured note offering for general corporate purposes and may use an unquantified portion for hedging transactions. Item 504 of Regulation S-K requires that issuers disclose the approximate amounts intended to be used for each purpose. If the issuer does not have specific plans for a significant portion of the proceeds of the offering, it should note the reasons for the offering.
CFI engages in Notes offerings to provide liquidity to and fund investments in Citi’s subsidiaries, primarily its broker-dealer subsidiaries, and to satisfy demand from customers of Citi’s broker-dealer subsidiaries and unaffiliated broker-dealers for exposure to various underlying assets and indices.
As set forth in CFI’s disclosures, in connection with each Notes offering, CFI generally enters into hedging transactions with one or more of its affiliates in order to swap its entire exposure to the underlying assets or indices for a floating rate payment obligation. In addition, CFI lends the principal raised to one or more affiliates, primarily to fund general broker dealer operations.
Citi’s affiliates and swap counterparties then generally maintain long or short positions, directly or indirectly, in the underlying assets or indices, options, futures contracts, forward contracts, swaps, or options on the foregoing, or other derivative or similar instruments relating to the relevant underlying assets or indices. These hedging activities may occur from time to time before the Notes mature and will depend on various factors including market conditions and the value of the underlying assets or indices. Further, the aggregate amount and type of such positions are likely to vary over time depending on future market conditions and other factors.
CONFIDENTIAL TREATMENT REQUESTED BY CITIGROUP INC.
Given the nature of these hedging transactions, CFI is only able to determine the total cost of hedging when the position is closed and any offsetting position or positions are taken into account. As a result, the amount of proceeds from an individual Notes offering that will be used for general corporate purposes as compared to hedging transactions by Citi’s subsidiaries is not known at the time of pricing of a particular Notes offering and thus, CFI is not able to provide this information.
5.
Please explain to us in your response letter with a view toward disclosure in your future Exchange Act reports, the purpose of your structured notes program generally, and the purposes of particular types of offerings or products. Explain to us how significant structured notes are to your overall plan of financing and liquidity position. Please tell us about any material trends or changes in your use of, or your experience with, structured notes in the past few years, including trends or changes in your reliance on structured notes as a liquidity source. Also tell us about trends or changes in note types and/or the referenced asset classes or referenced indices. Please include quantitative information about outstanding structured note obligations in recent periods.
As described in our response to comment 4 above, CFI engages in structured notes offerings in order to provide liquidity to and fund investments in Citi’s subsidiaries, primarily its broker-dealer subsidiaries, and to satisfy demand from customers of Citi’s broker-dealer subsidiaries and unaffiliated broker-dealers for exposure to various underlying assets and indices.
As of March 31, 2012, CFI (and legacy issuer Citigroup Global Markets Holdings Inc.) had structured notes outstanding of $26.3 billion, which constituted 8.4% of Citi’s total outstanding long-term debt of $311 billion as of such date. Based on the par amounts of debt, the $26.3 billion of structured notes was comprised of $3.8 billion of fixed structured notes, $1.6 billion in floating structured notes, $10.4 billion of rate structured notes, $0.8 billion of commodity linked structured notes, $0.8 billion of foreign exchange linked structured notes, $4.5 billion of equity linked structured notes, $3.4 billion of credit linked structured notes and $1.0 billion in other structured notes. CFI’s structured notes are typically smaller in size and are customized for retail, high net worth and institutional investors. For this reason, the particular types of structured notes offered vary over time based on investor demand and are often influenced by market conditions and individual institutional needs, such that there is no discernible trend.
Gross issuances of structured notes offered by CFI were approximately $4.8 billion in 2010 and $6.1 billion in 2011. As previously disclosed, Citi expects that structured notes will comprise a portion of the remaining $8 billion in debt that Citi expects to issue during the remainder of the 2012 fiscal year.
The weighted average maturity of structured notes issued by Citi subsidiaries has decreased from approximately six years in 2010 to approximately five years in 2011. This trend reflects increasing investor appetite for shorter term notes as well as Citi’s goal of reducing the tenor of its liabilities.
CONFIDENTIAL TREATMENT REQUESTED BY CITIGROUP INC.
Beginning in its Second Quarter of 2012 Quarterly Report on Form 10-Q, Citi intends to provide general information regarding the purpose of its structured notes programs, as well as any trends or changes affecting the structured notes programs, to the extent that they are material to Citi’s overall funding and liquidity.
Plan of Distribution
6.
We have found that some issuers of structured notes disclose that their affiliates might change the price and selling terms if all notes are not sold at the public offering price disclosed on the cover page. Please explain to us with a view toward disclosure, the manner in which you conduct structured note offerings, including the forms of underwriting involved. Also please explain whether any notes are sold to broker-dealers, including your affiliates, and not immediately resold to investors or are resold to investors at differing prices. In this situation, please explain why there may be different prices and what type of investor may receive a “better” price. Please explain the process in detail.
In CFI’s offerings of Notes, the underwriter commits at the time of pricing to purchase from CFI, as principal, the entire amount of Notes offered and then resells the Notes to investors (or to other broker-dealers, who then resell the Notes to investors) at a fixed public offering price. There are two general exceptions to the practice of selling all Notes to investors at a fixed public offering price. First, CFI has, to date, issued one series of continuously offered exchange-traded Notes. At the time of the initial offering of these Notes, CGMI purchas
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CORRESP 1 filename1.htm CONFIDENTIAL TREATMENT REQUESTED BY CITIGROUP INC. 000001 FOIA CONFIDENTIAL TREATMENT REQUEST CONFIDENTIAL TREATMENT OF CERTAIN DESIGNATED PORTIONS OF THIS LETTER HAS BEEN REQUESTED BY CITIGROUP INC. April 27, 2012 Via EDGAR and E-Mail Amy M. Starr Chief Office of Capital Markets Trends Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 RE: Citigroup Funding Inc. 424 Prospectuses relating to Registration Statement on Form S-3 Filed March 2, 2011 File No. 333-172554 Dear Ms. Starr: Citigroup Inc. (“Citi”), as the parent company of Citigroup Funding Inc. (“CFI”) and the guarantor of structured notes issued by CFI from time to time from the above-referenced registration statement (“Notes”), is providing this letter in response to your comment letter dated April 12, 2012 relating to the Notes. We continually assess our disclosures in connection with the offering of Notes and appreciate the opportunity to work with you in this regard. As previously discussed with you, this letter contains responses to all comments other than comment 2 in your comment letter. We will separately provide information in response to comment 2. For reasons of business confidentiality, in a separate letter dated the date hereof and enclosed herewith, we requested that information in this letter in the second paragraph of our response to your comment 8 not be disclosed in response to any request made under the Freedom of Information Act (5 U.S.C. § 552) or otherwise. Accordingly, pursuant to Rule 83 of the Rules on Information and Requests (17 C.F.R. § 200.83) of the Securities and Exchange Commission (the “Commission”), a complete copy of this letter will be provided only in paper form and not electronically as correspondence under the Commission’s EDGAR system. Omitted information has been replaced in this letter as filed via the EDGAR system with a placeholder identified by the mark “[***].” CONFIDENTIAL TREATMENT REQUESTED BY CITIGROUP INC. 000002 For your convenience, the text of each of your comments is set forth in bold below, followed by our response. Product Names 1. The staff in the Division of Corporation Finance has previously indicated that note titles using the term “principal protected” should also include balanced information about limitations to the principal protection feature. We believe this concern regarding potential confusion over the titles of securities may exist for note titles across various product categories. Issuers should evaluate the titles used for their different types of structured notes and should revise to clearly describe the product in a balanced manner and avoid titles that stress positive features without also identifying limiting or negative features. In accordance with prior guidance from the staff, we no longer use the term “principal protected” in any of our Note titles. We evaluate the titles of our Notes on an offering-by-offering basis to ensure that they clearly identify the particular type of Note offered in a balanced manner, and we will continue to do so in future offerings with this comment in mind. Product Pricing and Value 2. We note that issuers of structured notes often include disclosure, including in risk factors, explaining that the value of the notes at issuance and/or the price that the affiliate would pay for the notes in the secondary market, assuming no change in market conditions, will be less than the public offering price. In order for investors to be able to understand the relationship of the note purchase price to its fair value (as estimated by the issuer or its affiliate) and potential secondary market prices, we believe issuers should consider prominently disclosing the difference between the public offering price of the note and the issuer or its affiliate’s estimate of the fair value of the note or discuss with us the reasons such disclosure should not be provided. Issuers also should consider identifying the specific amounts being paid from the note proceeds for costs and expenses. As previously discussed with you, we will separately provide information in response to this comment 2. 3. We have observed that some issuers of structured notes or their affiliates will, for a limited period of time immediately following an offering, use values on account statements or provide repurchase prices to customers at levels that temporarily exceed the issuer’s or affiliate’s own estimate of the fair value of the product. Further, we understand that after a given period of time such values and prices will be readjusted to better reflect the issuer’s or affiliate’s own estimate of the fair value of the product. If applicable, we ask that you disclose, including in risk factor disclosure as appropriate, your usage of different values and prices in this manner and explain the potential impacts on post-offering pricing, valuation, and trading. CONFIDENTIAL TREATMENT REQUESTED BY CITIGROUP INC. 000003 Citigroup Global Markets Inc. (“CGMI”), the affiliated broker-dealer and underwriter for many of CFI’s Note offerings, provides values for the Notes that appear on customer statements. Those values are CGMI’s then-current indicative bid levels, which are an indication of what CGMI would pay its customers if they were to request a bid from CGMI for their Notes. CGMI believes these indicative bid values are the appropriate available values for customer statements, given the general absence of an observable secondary market for the Notes. CFI’s offering documents for the Notes clearly disclose that the amount CGMI may bid for the Notes in the secondary market may differ from pricing models used by CGMI. These pricing models use assumptions and estimates made by CGMI. A typical risk factor used by CFI states: [A]ssuming no change in market conditions or any other relevant factors, the price, if any, at which Citigroup Global Markets is willing to purchase the securities in secondary market transactions will likely be lower than the issue price, since the issue price will include, and secondary market prices are likely to exclude, underwriting fees paid with respect to the securities, as well as the cost of hedging our obligations under the securities. The cost of hedging includes the projected profit that our affiliates may realize in consideration for assuming the risks inherent in managing the hedging transactions. The secondary market prices for the securities are also likely to be reduced by the costs of unwinding the related hedging transactions. Our affiliates may realize a profit from the expected hedging activity even if investors do not receive a favorable investment return under the terms of the securities or in any secondary market transaction. In addition, any secondary market prices may differ from values determined by pricing models used by Citigroup Global Markets, as a result of dealer discounts, mark-ups or other transaction costs. In light of this comment 3, we propose to supplement our existing disclosure with disclosure substantially as follows: For a limited period of time immediately following issuance of the securities, the price at which Citigroup Global Markets may be willing to purchase your securities (if it is willing to do so at all) and the value that Citigroup Global Markets or its affiliates will indicate for your securities on brokerage account statements will likely exceed the estimated value of your securities determined by pricing models used by Citigroup Global Markets, which use assumptions and estimates made by Citigroup Global Markets to generate a theoretical price for the securities. The excess relates to an amortization of projected hedging profits and other transaction costs associated with managing related hedging transactions, as estimated by Citigroup Global Markets or its affiliates, subject to adjustment for the factors described in clauses (i) through (iv) below. CONFIDENTIAL TREATMENT REQUESTED BY CITIGROUP INC. 000004 Such amortization will be over a period determined by Citigroup Global Markets, which will generally not exceed six months. After the end of this period, the price at which Citigroup Global Markets may be willing to purchase your securities (if it is willing to do so at all) and the value of your securities indicated on brokerage account statements will be consistent with the value determined by pricing models used by Citigroup Global Markets, adjusted for (i) our credit risk (to the extent not already included in the pricing model), (ii) the expected cost of unwinding the related hedging transactions, (iii) liquidity in the actual market (if any) for the securities or similar securities and (iv) a customary bid-ask spread. However, you should understand that Citigroup Global Markets is not obligated to purchase your securities for any price at any time. For more information on CGMI’s pricing model, please refer to our response to comment 8 below. Use of Proceeds and Reasons for Offerings 4. Issuers often provide disclosure explaining that they will use the proceeds of a structured note offering for general corporate purposes and may use an unquantified portion for hedging transactions. Item 504 of Regulation S-K requires that issuers disclose the approximate amounts intended to be used for each purpose. If the issuer does not have specific plans for a significant portion of the proceeds of the offering, it should note the reasons for the offering. CFI engages in Notes offerings to provide liquidity to and fund investments in Citi’s subsidiaries, primarily its broker-dealer subsidiaries, and to satisfy demand from customers of Citi’s broker-dealer subsidiaries and unaffiliated broker-dealers for exposure to various underlying assets and indices. As set forth in CFI’s disclosures, in connection with each Notes offering, CFI generally enters into hedging transactions with one or more of its affiliates in order to swap its entire exposure to the underlying assets or indices for a floating rate payment obligation. In addition, CFI lends the principal raised to one or more affiliates, primarily to fund general broker dealer operations. Citi’s affiliates and swap counterparties then generally maintain long or short positions, directly or indirectly, in the underlying assets or indices, options, futures contracts, forward contracts, swaps, or options on the foregoing, or other derivative or similar instruments relating to the relevant underlying assets or indices. These hedging activities may occur from time to time before the Notes mature and will depend on various factors including market conditions and the value of the underlying assets or indices. Further, the aggregate amount and type of such positions are likely to vary over time depending on future market conditions and other factors. CONFIDENTIAL TREATMENT REQUESTED BY CITIGROUP INC. 000005 Given the nature of these hedging transactions, CFI is only able to determine the total cost of hedging when the position is closed and any offsetting position or positions are taken into account. As a result, the amount of proceeds from an individual Notes offering that will be used for general corporate purposes as compared to hedging transactions by Citi’s subsidiaries is not known at the time of pricing of a particular Notes offering and thus, CFI is not able to provide this information. 5. Please explain to us in your response letter with a view toward disclosure in your future Exchange Act reports, the purpose of your structured notes program generally, and the purposes of particular types of offerings or products. Explain to us how significant structured notes are to your overall plan of financing and liquidity position. Please tell us about any material trends or changes in your use of, or your experience with, structured notes in the past few years, including trends or changes in your reliance on structured notes as a liquidity source. Also tell us about trends or changes in note types and/or the referenced asset classes or referenced indices. Please include quantitative information about outstanding structured note obligations in recent periods. As described in our response to comment 4 above, CFI engages in structured notes offerings in order to provide liquidity to and fund investments in Citi’s subsidiaries, primarily its broker-dealer subsidiaries, and to satisfy demand from customers of Citi’s broker-dealer subsidiaries and unaffiliated broker-dealers for exposure to various underlying assets and indices. As of March 31, 2012, CFI (and legacy issuer Citigroup Global Markets Holdings Inc.) had structured notes outstanding of $26.3 billion, which constituted 8.4% of Citi’s total outstanding long-term debt of $311 billion as of such date. Based on the par amounts of debt, the $26.3 billion of structured notes was comprised of $3.8 billion of fixed structured notes, $1.6 billion in floating structured notes, $10.4 billion of rate structured notes, $0.8 billion of commodity linked structured notes, $0.8 billion of foreign exchange linked structured notes, $4.5 billion of equity linked structured notes, $3.4 billion of credit linked structured notes and $1.0 billion in other structured notes. CFI’s structured notes are typically smaller in size and are customized for retail, high net worth and institutional investors. For this reason, the particular types of structured notes offered vary over time based on investor demand and are often influenced by market conditions and individual institutional needs, such that there is no discernible trend. Gross issuances of structured notes offered by CFI were approximately $4.8 billion in 2010 and $6.1 billion in 2011. As previously disclosed, Citi expects that structured notes will comprise a portion of the remaining $8 billion in debt that Citi expects to issue during the remainder of the 2012 fiscal year. The weighted average maturity of structured notes issued by Citi subsidiaries has decreased from approximately six years in 2010 to approximately five years in 2011. This trend reflects increasing investor appetite for shorter term notes as well as Citi’s goal of reducing the tenor of its liabilities. CONFIDENTIAL TREATMENT REQUESTED BY CITIGROUP INC. 000006 Beginning in its Second Quarter of 2012 Quarterly Report on Form 10-Q, Citi intends to provide general information regarding the purpose of its structured notes programs, as well as any trends or changes affecting the structured notes programs, to the extent that they are material to Citi’s overall funding and liquidity. Plan of Distribution 6. We have found that some issuers of structured notes disclose that their affiliates might change the price and selling terms if all notes are not sold at the public offering price disclosed on the cover page. Please explain to us with a view toward disclosure, the manner in which you conduct structured note offerings, including the forms of underwriting involved. Also please explain whether any notes are sold to broker-dealers, including your affiliates, and not immediately resold to investors or are resold to investors at differing prices. In this situation, please explain why there may be different prices and what type of investor may receive a “better” price. Please explain the process in detail. In CFI’s offerings of Notes, the underwriter commits at the time of pricing to purchase from CFI, as principal, the entire amount of Notes offered and then resells the Notes to investors (or to other broker-dealers, who then resell the Notes to investors) at a fixed public offering price. There are two general exceptions to the practice of selling all Notes to investors at a fixed public offering price. First, CFI has, to date, issued one series of continuously offered exchange-traded Notes. At the time of the initial offering of these Notes, CGMI purchas