Citibank and Salomon Smith Barney Complete $100 Million Securitization for Aerolineas Argentinas S.A.

NEW YORK--(BUSINESS WIRE)--Aug. 25, 1999--

Innovative Financing Highlights Citigroup Synergies and Provides

Cornerstone for Airline's Recapitalization and Debt Restructuring 

Citibank, N.A. and Salomon Smith Barney, Citigroup's Global Corporate and Investment Banking units, today announced their bookend roles as structuring agent and underwriter, respectively, on a $100 million securitization of international passenger and cargo receivables for Aerolineas Argentinas S.A.

The execution of the transaction utilized the combined teams of Citibank departments covering Argentina, aviation, securitization, insurance and insurance derivatives, as well as Salomon Smith Barney units covering corporate finance (transportation), structured finance, syndicate, sales and credit derivatives.

The new securities were structured by Citibank as a means for Aerolineas Argentinas S.A. to finance its new business plan, including an overall recapitalization of the company. Salomon Smith Barney served as underwriter for the 144A notes, which are secured by future ticket sale receivables generated by Aerolineas from various international payors located in Australia, Canada, France, Germany, the Netherlands, Italy, Japan, Switzerland, the United Kingdom and the United States. No other transaction of this type has ever securitized such a broad and global spectrum of receivables.

This transaction is unique because it involves a variety of payors not typically assembled in this type of transaction, including cash receivables from (i) the International Air Transport Association's (IATA) Currency Clearing Service, (ii) Airlines Reporting Corporation ("ARC") and (iii) Cargo National Services Corporation's Cargo and Settlement System ("CASS").

"As structuring agent for the transaction, Citibank negotiated the appropriate security arrangements for these payors and established a framework for leveraging these revenue streams that can be adapted to suit the financing needs of other airlines in the future," said Tom Hollahan, Global Aviation Industry Head for Citibank, N.A. "The transaction also profiles IATA in a distinct new role supportive of airlines' financing plans, and we are particularly grateful to have received the support of our colleagues at IATA, as well as ARC and CASS on this transaction. Leveraging these revenue streams has uncovered asset value for Aerolineas, and we are proud of the fact that this transaction succeeded in attracting new capital to Argentina at a time when capital was most scarce," he added.

C. David Cush, Chief Operating Officer of Aerolineas, commented upon closing: "The completion of this transaction by Aerolineas and Citigroup was a principal element of the recapitalization of Aerolineas and advances an essential objective of the business plan established by our shareholders. The financing affords Aerolineas a flexible, long-term financing vehicle through which to manage our company's capital structure. We appreciate the work of the various units of the Citigroup team in putting together this important financing for us."

Citibank and Salomon Smith Barney actively assisted investor purchases of securities by arranging innovative risk management mechanisms designed to protect investors from commercial and sovereign risks. "Rather than simply syndicating the sale of the securities, we have syndicated the risk component as well, primarily to global re-insurers," commented Al Hageman, Head of Global Securitization for Citibank, N.A.

John R. Kelly, Head of Insurance Derivatives for Citibank/SSB, added, "Of the various risk transfer providers, we found that the global reinsurance market best served our needs for purposes of this transaction. It is our view that the insurance markets will play an increasingly important role as an alternative distribution channel and risk management tool for issuers such as Aerolineas."

The transaction further passed on to Aerolineas the benefits of flexible redemption features on the notes by restricting the no-call period to two years, thereby allowing Aerolineas to refinance its seven year notes for savings after such time. One of the principal investors in the transaction was a securitization company administered by Citicorp North America, Inc. that issued commercial paper to investors to fund its acquisition of the notes. "Commercial paper-funded structures can provide important option-adjusted spread savings for issuers," notes Al Hageman. "This optional redemption feature fit in nicely with Aerolineas' time frame, while at the same time providing the certainty of longer-term funding. "

Aerolineas Argentinas S.A. is the flag carrier of Argentina, with important and dominant market shares in domestic and international air traffic serving that country. Since October 1998, Aerolineas has been in the process of implementing a new business plan based on an agreement between Sociedad Estatal de Participaciones Industriales ("SEPI"), AMR Corporation ("AMR") and Iberia Lineas Aereas de Espana ("IBERIA"), the controlling shareholders of Aerolineas and its sister company, Austral Lineas Aereas - Cielos del Sur S.A. This business plan includes various elements designed to enhance the product delivery of Aerolineas, improve yield management and support affiliations with international carriers such as American Airlines and Iberia. A further principal part of the new business plan was an overall recapitalization of the companies providing for new equity and debt as well as the restructuring of existing indebtedness.

This securitization was the third capital markets transaction Citigroup has completed for Aerolineas since 1997, when Citibank developed the Aerolineas' Aerocard program, a $150 million securitization of Aerolineas' domestic credit card receivables. "We are proud of our ongoing relationship with Aerolineas," noted Carlos Ferdigotti, Country Corporate Officer for Citibank in Argentina. "We are pleased to have assisted them in developing their principal long-term debt structure for Aerolineas' corporate recapitalization and to have been part of their financing innovations," he added.

Tom Hollahan added in summary: "This transaction demonstrates the unique breadth of service and expertise that Citigroup offers its aviation clients and underscores the rationale for the merger of Citicorp and Travelers Group."

Citibank is a global leader in serving both consumers and corporate customers through a network of 3,400 offices around the world. As the commercial banking subsidiary of Citigroup Inc., it provides a full range of corporate banking services to some 1,400 multinational corporations, financial institutions and government entities wherever in the world they have needs. Citibank also provides local growth companies in some 70 emerging market countries with a wide range of services, including corporate finance, foreign exchange dealing, cash management and, for more than 2,500 global issuers and investors, custody, agency and trust services and transaction processing.

Salomon Smith Barney is a global, full-service investment banking and securities brokerage firm. The firm's 10,900 Financial Consultants located in approximately 460 offices across the United States, service over 6.2 million client accounts, representing over $816 billion in client assets. Salomon Smith Barney is a subsidiary of Citigroup.

Citigroup (NYSE: C), the most global financial services company, provides some 100 million consumers, corporations, governments and institutions in 100 countries with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, insurance, securities brokerage and asset management. The 1998 merger of Citicorp and Travelers Group brought together such brand names as Citibank, Travelers, Salomon Smith Barney, Commercial Credit and Primerica under Citigroup's trademark red umbrella. Additional information can be found at: http://www.citi.com/.