Cleary Gottlieb represented the underwriter, Citigroup Global Markets Inc., in Citigroup Global Markets Holdings Inc.’s $47.35 million offering of Targeted Growth Enhanced Terms Securities (TARGETS) due February 15, 2008. The securities are linked to the common stock of Intel Corporation. Cleary also served as special tax counsel to Citigroup Global Markets Holdings in this transaction.
The TARGETS are preferred securities of a trust that owns (1) a forward contract issued by Citigroup Global Markets Holdings, the payout on which is based on the price of Intel common stock and (2) a portfolio of stripped self-amortizing securities issued by the U.S. Treasury known as Treasury STRIPS. The TARGETS pay quarterly distributions that are much higher than the dividends on Intel common stock because these distributions are funded largely by the Treasury STRIPS. A significant portion of the quarterly distributions from the Treasury STRIPS is treated as a nontaxable return of capital for U.S. federal income tax purposes. At maturity, the TARGETS pay investors an amount based on the compounded monthly percentage return on Intel common stock over the term of the TARGETS. The monthly return on Intel common stock in which investors can participate is subject to a cap of 4.5% and a floor of –12%. As a result of this structure, investors receive tax-advantaged quarterly distributions that are much higher than the dividends they would receive if they owned Intel common stock directly and partially limit their exposure to any decrease in the value of Intel common stock, but participate in only a portion of any increase in the value of the stock.
Intel Corporation is the world’s largest semiconductor chipmaker and produces chips, boards, and other semiconductor components that are integral to computers, servers and networking and communications products.