CIT's loan deal keeps firm out of bankruptcy
By Alan Zibel |
July 21, 2009, Tuesday
|
Print Edition
Print Edition
CIT Group Inc's board approved a deal late Sunday with major bondholders to keep the company out of bankruptcy with a US$3 billion rescue loan, according to reports.
The emergency loan would provide temporary financing for CIT Group so it can complete a debt exchange that would swap current outstanding bonds for new bonds that mature at a later date, according to a report in The Wall Street Journal.
CIT representatives could not immediately be reached for comment.
New York-based CIT had been negotiating with six key bondholders - including bond manager Pimco - in an attempt to avoid a bankruptcy filing. Jeffrey Peek, the company's chairman and chief executive, was actively involved in the talks, according to a person briefed on the matter. The person spoke on condition of anonymity because the talks are confidential.
CIT has been scrambling to raise US$2 billion to US$4 billion after the federal government refused to bail out the company. Rescue talks with government regulators broke off late last Wednesday after days of round-the-clock negotiations.
Under the deal, CIT's main bondholders would give the company US$3 billion at an initial rate of about 10.5 percent, the Journal said. Some of CIT's highest quality loans would be used as collateral for the new loan.
Time for CIT
Completing the financing deal could also give CIT time to complete a plan to transfer loans to its banking subsidiary in Utah. CIT, which traditionally used bond and debt markets to finance its operations, could move loans to its banking subsidiary. It would then be able to finance them through deposits at the bank, which are considered a more stable base of funding.
A bankruptcy filing would have threatened funding for scores of small businesses across the country. It also would have wiped out US$2.3 billion in federal bailout money injected into the company in December.
The lender faces US$7.4 billion in debt due in the first quarter of next year. CIT had warned that depriving it of more federal aid could imperil about a million corporate borrowers.
The emergency loan would provide temporary financing for CIT Group so it can complete a debt exchange that would swap current outstanding bonds for new bonds that mature at a later date, according to a report in The Wall Street Journal.
CIT representatives could not immediately be reached for comment.
New York-based CIT had been negotiating with six key bondholders - including bond manager Pimco - in an attempt to avoid a bankruptcy filing. Jeffrey Peek, the company's chairman and chief executive, was actively involved in the talks, according to a person briefed on the matter. The person spoke on condition of anonymity because the talks are confidential.
CIT has been scrambling to raise US$2 billion to US$4 billion after the federal government refused to bail out the company. Rescue talks with government regulators broke off late last Wednesday after days of round-the-clock negotiations.
Under the deal, CIT's main bondholders would give the company US$3 billion at an initial rate of about 10.5 percent, the Journal said. Some of CIT's highest quality loans would be used as collateral for the new loan.
Time for CIT
Completing the financing deal could also give CIT time to complete a plan to transfer loans to its banking subsidiary in Utah. CIT, which traditionally used bond and debt markets to finance its operations, could move loans to its banking subsidiary. It would then be able to finance them through deposits at the bank, which are considered a more stable base of funding.
A bankruptcy filing would have threatened funding for scores of small businesses across the country. It also would have wiped out US$2.3 billion in federal bailout money injected into the company in December.
The lender faces US$7.4 billion in debt due in the first quarter of next year. CIT had warned that depriving it of more federal aid could imperil about a million corporate borrowers.
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