Debt Worries Hinder Citi Disposal
Citigroup’s attempts to sell OneMain Financial, the largest US consumer finance company, have stumbled over concerns among potential bidders about its funding as a standalone business.
The unit, formerly known as CitiFinancial, holds a unique place in Citi’s history as the cornerstone upon which Sandy Weill, former chairman, would build the world’s largest financial-services company. By the end of the financial crisis and the US government bail-out of the bank, however, Citi had shunted the division into a portfolio of assets that no longer fitted its strategy.
The bank has been trying to offload the business for six months but potential buyers are still trying to establish how much debt the consumer finance unit would need to raise, as well as how much funding Citi will commit to seal a deal.
People familiar with the matter said the three remaining bidding groups for OneMain were waiting on reviews by credit rating agencies, which are expected to report on the unit’s finances in the next two weeks. Citi also plans to produce audited financial statements on the standalone unit, these people said.
Without a determination from the rating agencies on whether OneMain’s loans can be securitised – and the credit rating which would apply – buyers might struggle to fund the business once it is separated from Citi’s balance sheet. The bank has not made clear how large a funding gap it is prepared to fill, the people said.
Among the potential buyers is a private equity consortium of Blackstone, Carlyle, and Brysam Global Partners, a group led by former Citi executives Bob Willumstad and Marjorie Magner. Apollo Management and JC Flowers form a second bidding group, while Centerbridge Capital Partners leads a third.
OneMain’s audited financial statements could also serve as an important milestone should Citi fail to find a buyer and pursue an initial public offering instead for the business. Citi declined to comment.
The bank has insisted that it would not accept less than book value – of about $2 billion – for OneMain, providing a stumbling block on negotiations. Since the financial crisis, other consumer finance assets – including AIG’s American General business – have changed hands for a considerable discount to book value.
OneMain has some 1,500-plus community branches, which make and service loans to borrowers in their local areas.
The business was hit hard during the crisis as the lowerincome customers it had targeted defaulted on personal loans and the funding markets it relied upon froze.