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Home > Cases > Citigroup > Citigroup's $2.4 Billion Bonifacius CDO Auctioned

Citigroup's $2.4 Billion Bonifacius CDO Auctioned

In Latin, the word “Bonifacius” means good fate. Unfortunately the same can't be said for a Citigroup collateralized debt obligation (CDO) that goes by the same name.

As reported in a June 20 article on Bloomberg.com, the collateral backing Citigroup's $2.4 billion Bonifacius Ltd. CDO will be auctioned off, following a downgrade by Fitch Ratings to CC from BBB on the $1.6 billion top tier of the CDO. Nearly 45 percent of Bonifacius was composed of bonds from subprime-related home loans, with another 30 percent of the collateral from other CDOs.

Initially, the top tier of Bonifacius was rated AAA.

CDOs are complex pools of asset-backed securities comprising various types of loans that are bundled together and sold to investors in pieces. These pieces, or tranches, carry varying levels of risk, as well as credit ratings. Senior-level tranches make up the majority of funding for CDOs and are typically rated AAA. Junior-level tranches have lower ratings and are the first to absorb any losses.

In the past few years, CDOs have skyrocketed in popularity, with more than $1.5 trillion of those like Bonifacius created. Recently, however, the subprime aftermath has turned the vehicles into a major source of frustration for investment banks, with falling CDO prices contributing to record write downs that have cost them and investors more than $100 billion in losses, as well pushing the U.S. economy toward recession.

Citigroup's woes with Bonifacius Ltd. began almost at the onset of its creation last August. Within six months, the CDO had collapsed under the weight of the subprime mortgage crisis.

Similar fates have struck countless numbers of other CDOs. In the past eight months, more than $200 billion of the securities have imploded, causing banks that hold the securities to bring them back onto their books and record losses. In Citigroup's case, it marked down the value of its CDOs by about $3 billion in the first quarter and forecasts additional write downs and more losses on consumer loans in the second quarter. All told, Citigroup has lost more than any other bank in the collapse of the mortgage market, taking more than $42 billion of credit losses and write downs since last year, according to Bloomberg data.

As for Citigroup's Bonifacius CDO, it's expected that proceeds from the liquidation will not be enough to pay investors in even the most senior-level tranches. The remaining tranches are expected to receive zero interest and principal.

Interestingly, the fate of Bonifacius - and the $200 billion of securities like it that have gone south this year - comes on the heels of a 27-page indictment detailing evidence against former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin, both of whom were arrested June 19 on charges of misleading investors about the rapidly tanking value of two hedge funds - funds that included collateralized-debt obligations.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.


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