Citadel Investment Group may be the first, or at least the highest profile, hedge fund to use public debt financing to raise cash. Already, reports Financial News, a number of hedge funds have issued debt in private bonds but this quasi-public debt is viewed as ground-breaking. It is also viewed as the latest strategy for hedge funds to create a steady flow of cash, which is not subject to discretionary margin requirements that lending investment banks usually impose on hedge funds. The Chicago-based fund wrote in its offering circular, Citadel believes that establishing a source of long-term debt financing for the funds...which are not subject to the imposition of discretionary margin requirements and foreclosure by dealers and counterparties, will enhance the stability of the funds capital base. Citadel has tapped Goldman Sachs and Lehman Brothers as lead managers of the $500 million, five-year bond, which will be offered this week after several investor presentations. As one debt syndicate banker told FN, Investors will be directly investing in a hedge fund, but will receive no equity upside. Its certainly a bull-market trade. The report of the Rule 144a bond issue meaning it does not have to register with the Securities and Exchange Commission -- is open only to institutional investors, and comes amid speculation that Citadel experienced substantial losses in its energy investments, rumors that the firm has denied. Fitch, according Financial Times, is expected to give the five-year notes a BBB+ rating.