Citi allows loan ‘cherry picking’

Citigroup is allowing private equity groups bidding for up to $12bn of its leveraged loans to cherry-pick from a wide range of assets with different prices and credit ratings – a move that could complicate Citi’s efforts to clean up its balance sheet.

People close to the situation said that, rather than selling the loans as a block, Citi was asking buy-out firms including Apollo, TPG and Blackstone to choose from a menu of leveraged loans used to fund at least seven major buy-out deals.

The assets range from loans used to fund Cerberus Capital Management’s deal to buy a stake in Chrysler, which now trades as low as 63 cents on the dollar, to better-performing credits, such as those financing the $45bn buyout of utility TXU.

People familiar with the sale said private equity groups were likely to focus on loans linked to deals they knew well, while steering clear of those that were perceived as troubled or unlikely to recover. As a result, Citi might end up selling less than the $12bn it had originally targeted, they added.....