Financial services major Citigroup has begun talks with private equity groups and hedge funds over the sale of $3 billion worth of car loans as part of its efforts to cleanse its balance sheet, says a media report.
Attributing to people close to the situation, the Financial Times has reported that Citi had opened talks with private equity groups and hedge funds over the sale of $3 billion worth of car loans.
To make the business more attractive, Citi is believed to have offered to provide buyers of the loans with finance for a few years after the sale.
Citing bankers, the report said the initial response from potential bidders had been encouraging.
Some of Citi loans have already been securitised under the ‘term asset-backed securities loan facility’ (Talf), a U.S. government programme aimed at supporting the ailing securitisation market.
An asset-backed security is one whose value and income payments are derived from and collateralised (or backed) by a specified pool of underlying assets.
According to the publication, however, some private equity groups and hedge funds that have looked at the assets said the lack of a thriving market for securitised bonds, which are backed by cash flow from loans, made them less attractive.
Bankers further said the absence of a fully functioning securitisation market increased the uncertainty over how buyers could fund the loans once Citi’s credit facility expired.
The daily also said that stumbles of the securitisation market have also contributed to the decision by AIG to pull back from a number of sales of units such as its aircraft leasing arm.
In the run-up to the crisis, securitisation was a key driver of the boom in mortgages, credit card loans and auto loans as it transformed these loans into securities that investors could easily buy, lowering their costs and increasing demand for them.
