CIT Makes Tentative Deal With Bondholders to Avert Bankruptcy

CIT appears to have reached an out-of-court restructuring, which includes having current bondholders provide financing. From Reuters:

CIT Group Inc has reached a tentative deal with a bondholder group for $3 billion in rescue financing, which the lender hopes will help it avoid bankruptcy,…

The bondholder group, which includes Pacific Investment Management Company (Pimco) and some other top CIT holders, is expected to provide the financing with a 2 1/2-year term,…

The deal is part of a larger restructuring plan, the source said.

The $3 billion rescue financing plan will be backed by remaining unsecuritized assets which likely exceed $10 billion, another source familiar with the matter said.

“The $3 billion is new money but securitized by all the remaining unsecuritized assets which probably exceed $10 billion,” that source said.

More details from the Financial Times:

“This paves the way for an orderly restructuring of the balance sheet with time and capital,” said one participant in the likely financing. “And it will give CIT’s customers plenty of capital.”

The company, which provides finance to nearly a million small and medium-sized companies in the US, and its creditors had to move quickly to arrest a slide into bankruptcy and prevent its best customers from defecting for fear that the lender could no longer support them….

CCIT will have enough time to work out which if any assets it should sell. The next step will likely involve cajoling other holders to exchange their debt into equity and then, having demonstrated that CIT has a viable survival plan, to go to the government and ask for help.

Jeff Peek, CIT’s chief executive who led negotiations with creditors, was likely to stay on following the financing…The management has been criticised for diversifying into high-risk businesses such as subprime lending and student loans and relying on capital markets to fund CIT’s balance sheet.

CIT’s creditors stepped in after it became clear that the government was not willing to provide any emergency assistance…

The probable rescue financing will come as a relief to the government – had CIT filed for bankruptcy protection, the Treasury would likely have lost the $2.3bn of bailout funds CIT received late last year.

It would also have been a huge embarrassment for the Fed, which had described CIT as adequately capitalised when it approved of its banking application.

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  1. Independent Accountant

    These are the same idiots who gave us "stress tests". Don't they reassure you as to the solvency of the banks tested?

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