Citigroup in ELKS® Offerings Linked to Wal-Mart and Southwest Airlines

Cleary Gottlieb represented Citigroup Global Markets Inc. as placement agent in three separate offerings by Citigroup Global Markets Holdings Inc.  The securities sold included $33.4 million in principal amount of 3.40% ELKS® Mandatorily Exchangeable into the Common Stock of Wal-Mart Stores, Inc. due 2006, $15.3 million in principal amount of 5.35% ELKS® Mandatorily Exchangeable into the Common Stock of Southwest Airlines, Co. due 2006 and $10.7 million in principal amount of 7.02% ELKS® Mandatorily Exchangeable into the Common Stock of Southwest Airlines, Co. due 2006. 

The ELKS®, issued under a medium-term note program, are unsecured senior debt securities that offer investors the possibility of receiving a greater payment at maturity than they would receive on a Citigroup Global Markets Holdings bond of comparable maturity.  Investors receive at maturity a number of shares of the underlying company’s common stock based on a specified exchange ratio.  The ratio is subject to a cap price that limits investors’ share in any appreciation in the value of the underlying company’s common stock.  However, the ELKS® also have a limited downside.  If the price of the underlying stock does not decline by a certain percentage during the term of the ELKS®, investors receive a minimum cash payment equal to the principal amount of the ELKS® held by them at maturity.

Medium-term note programs reduce transaction cost to issuers who “take down” securities off their existing shelf registration statements.  The reduced costs facilitate offerings of smaller amounts of securities than would otherwise occur, and they assist issuers in managing their liabilities and cash more precisely.  Often, an entire issue is sold to a particular end purchaser (usually a pension fund, mutual fund or other institutional investor).  In many cases the end purchaser actually initiates the transaction, specifying the characteristics of the security it wants to buy and approaching the issuer (or the investment bank acting as agent for the program) to request issuance of a security with those characteristics.