State of Hawaii, Citigroup Global Markets Reach Resolution on State’s Purchase of Auction Rate Securities


HONOLULU – Hawaii Attorney General Mark Bennett and Citigroup Global Markets Inc. (Citi) announced today that the State of Hawaii and Citi have reached a resolution concerning the State’s purchase of auction rate securities.

The State currently owns approximately $869 million in such securities, which were the subject of auction failures beginning in 2008.  The State is currently earning interest on these securities, but the market value of the State’s portfolio has significantly decreased.  The State has already liquidated approximately $200 million worth of securities at par value since February 2008.

The attached agreement (which the State and Citi have been negotiating for several months since developing basic deal parameters in July), principally provides:

1) In June 2015, the State will have the option to require Citi to purchase some or all of the State’s remaining auction rate securities portfolio at par as well as to have Citi make up the difference between liquidation price and par on any of the State’s auction rate securities which have been previously involuntarily liquidated below par, which means the State’s taxpayers will lose no principal on any of the State’s auction rate securities investments.

2)  Starting in July 2012, the State will have the ability to obtain interim liquidity on its auction rate securities portfolio of up to $150 million worth of the securities, at market value, with the difference between that market value and par paid by Citi in July 2015.

3) The State has released potential claims against Citi and any affiliated entities or individuals in connection with its investments in auction rate securities, and Citi admits no wrongdoing.
Attorney General Bennett stated:  “These negotiations have been complex and difficult, but from the beginning the State and Citi worked hard to find a resolution.  I believe this settlement is in the best interests of the State, and provides substantial value to the State.  The State will essentially get back what it paid for these securities, plus interest collected on them.  The alternative—lengthy, expensive litigation—would have provided no certainty, and might, in the end, have been unsuccessful.  Bottom line—taxpayers will not lose out on the principal value of these securities, and that is a good result for Hawaii and its citizens.  I would like to commend Citi for this agreement, for the way it has approached this matter, and for its good faith efforts to resolve this issue.”

Georgina Kawamura, Director of the Hawaii Department of Budget and Finance stated:  “I believe this agreement makes sense for Hawaii.  Our goal in these negotiations has been to assure that our taxpayers will not receive less than par on these investments, and this agreement provides for that.”

“We’re pleased to provide this liquidity solution to the State,” said Alexander Samuelson, Director, Citi Public Affairs.  “We value our relationship with the State of Hawaii and thank Attorney General Bennett for his dedication during the past several months of negotiations to finding a solution.”

Submitted by Bridget Holthus, Special Assistant to the attorney general