Citicorp Agrees to Sell Credit Guarantee Unit

CapMAC Sale Would Cut Assets by $5 Billion

Citicorp has agreed in principle to sell its Capital Markets Assurance Corp. subsidiary to a group made up of the unit's managers and Elmrock Inc., an investment arm of the Rockefeller family.

The sale would remove about $5.3 billion in risk-adjusted assets from Citicorp's books. The purchase price was not disclosed, and it was unclear whether the proceeds would exceed book value.

(In another move to improve its financial condition, Citicorp unveiled a plan Tuesday aimed at slashing expenses and improving global communications.

Citicorp has been trying to sell the credit guarantee unit for more than a year. Although profitable, it is too much of a drag on the bank's capital ratios. "In order to help their Tier 1 and Tier 2 numbers, it was necessary for Citi to do this," said Raphael Soifer, an analyst at Brown Brothers Harriman.

Effect on Tier 1 Ratio

He estimated that the deal could boost Citicorp's Tier 1 ratio from 3.64% to 3.74%. Many analysts regard this goal as even more critical than any proceeds from the sale.

CapMAC, as the unit is called, offers credit guarantees to issuers of certain asset-backed securities. These structured financing arrangements allow issuers to secure a triple-A credit rating, which appeals to investors.

Elmrock is a private investment company which already owns a number of companies like CapMAC that engage in structured finance transactions. Its president, David Elliman, is the great-great-grandnephew of John D. Rockefeller Sr.

Mr. Elliman characterized the deal as a buyout led by CapMAC president John Caouette and about eight other top managers of the organization. The company employs about 70 people.

Sources said they have been talking since August, when Mr. Caouette approached Mr. Elliman about a deal. Because of Mr. Elliman's previous involvement in structured finance, he said he was familiar with the company. "We have done business with CapMAC before," he said.

$250 Million Book Value

Mr. Elliman would not disclose the purchase price or the shares his group and management were contributing to the deal. Analysts have put CapMAC's book value at about $250 million.

Started four years ago, the subsidiary has quickly established a presence in the growing market for specialized credit guarantees. Net income for 1990 was $12.9 million and is running ahead of that pace for 1991. Nine-month earnings through Sept. 30 were $11.5 million, according to Alex Lamb, chief financial officer.

However, the company's business is by its nature highly leveraged, which

means it contributes little capital for the assets it insures.

Citicorp is trying to reduce leverage and boost capital, and it almost sold CapMAC earlier this year to Financial Guaranty Insurance Co., a competitor.

Citicorp sold a majority stake in CapMAC's sister company, AMBAC Indemnity Corp., to the public in July in an initial public offering, allowing the banking company to reduce its risk-adjusted assets by $27 billion.

The agreement with Elmrock was sparked, in part, by Citicorp's heightened pressure on CapMAC management to find a buyer, sources said. Some sources have said that Citicorp gave the subsidiary until Dec. 31 to find a buyer or be liquidated. A CapMAC spokesman denied that Citicorp had threatened liquidation.

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