why are citi preferreds up? i can't figure it out

i understand the $3.25/share conversion price but why would a c-i be trading up? what am i missing?

 

If the big investors convert, pref benefit as they get more suckers to sit them below in the capital structure. It also increases the company profitability as the company saves on payments

 

http://www.elitetrader.com/vb/showthread.php?s=&threadid=150541&perpage=6&pagenumber=9

although the calculation may be simplistic, you could value preferred stock at

(common stock price / 3.25) * par value of preferred stock

 

that would far overvalue the preferreds if you use that calc.

 

"Remaining Preferreds

-- Dividends on outstanding preferred stock not exchanged will be suspended


-- eTruPS and TruPS distributions remain unchanged"

Some of these preferreds could be of the type who will continue to pay dividends

 

we figured it out....i didn't get that the new par value price was 3.25....man this is fucked lol

 

What does it mean that the new par value is 3.25? What is the calculation one uses to figure out the value of c.i?

Thanks,
trader29

 

I just received an email back from citi. This is their response.



For Publicly Issued Straight and Convertible Preferred Stock and Trust Preferred Securities, the exchange price will be $3.25/share at a premium to market. Because these shares are trading at a significant discount to their par value, the exchange will also take place at a discount to that value. However, this discount will still be in excess of the current market value of the securities. The exact discount will be determined on a series-by-series basis, and holders of the series AA, E, F and T, as well as TruPs and eTruPs should feel free to contact Citi's capital markets desk for further details. Additionally, these details will be made publicly available in an S-4 filing with the Securities and Exchange Commission as soon as practicable.

The privately placed convertible preferred stock are receiving $3.25/share at par in exchange for an interim security and warrants that will convert only if shareholders approve an increase in authorized shares. This pricing is based on a variety of factors, including the large private holders made a commitment to convert ahead of the vote and illiquidity issues, among others.

Details of this transaction, including a transaction summary, are available on our website at http://www.citigroup.com/citi/fin/.

Kind regards,
Citi Investor Relations

 

We were wrong
http://www.businessinsider.com/heres-why-citis-preferred-soared-today-2009-2

 

Thanks Daal.

Also there is a good link on that page to Zerohedge's blog:

For a full rundown: http://zerohedge.blogspot.com/2009/02/reason-for-todays-persistent-decline-in.html

*********************

Zerohedge wrote:

Carney, you missed what most other funds missed as well, that the private/government investors and public investors will be treated as two totally separate classes, which was noted in footnote 2 to the conversion example that citi posted here: http://www.citigroup.com/citi/fin/data/p090227a.pdf?ieNocache=645

as the footnote says "Ownership assumes conversion of publicly issued preferred stock is done at a significant premium to market, while the U.S. Government’s and
privately placed preferred are done at par."

The arb play assuming no premium for private preferred holders generates 50% returns, but public investors can be roaylly screwed if they do the common/pref arb as the premium for public investors could easily end up being high enough to destroy any return whatsoever.

This could easily become the next volkswagen play

For a full rundown: http://zerohedge.blogspot.com/2009/02/reason-for-todays-persistent-decline-in.html