As part of a restructuring plan, CIT Group is looking for some of its largest bondholder group to offer $3 billion in bride financing – reported Reuters. The more than a century old commercial finance company’s problems surfaced a couple of years back, when Jeffrey Peek, CEO, took a decision to enter into subprime mortgages and student loans that are extremely profitable but fraught with added risk. It has posted close to $3 billion losses over the past eight quarters on home mortgages, student loans and credit to commercial customers, and has $1 billion of floating rate notes due in August 2009. It has $10 billion of debt maturing in 2010, including a $2.1 billion credit line.
According to the CIT’s internal documents, bankruptcy would put approximately 760 manufacturing clients at risk of failure and precipitate a crisis for as many as 300,000 retailers. Sheila Bair, chairman of FDIC, is of the opinion that any US-sponsered rescue of CIT would put taxpayer money at risk, as the firm’s credit quality has already deteriorated and the financial regulators main responsibility is to protect depositors money instead of helping the financial firms and their investors.
The bondholder group, which includes Pacific Investment Management Company, is expected to provide the financing with a 2 1/2-year term, reported the newspaper. The $3 billion cash replenishment plan will be backed by remaining unsecuritized assets which probably exceed $10 billion.
However, David Hendler, an analyst at CreditSights in New York, said: “We still think it is a losing effort in the intermediate term although some bondholders may end up better than others with this structure. The wholesale model is dead and creating a branch deposit system from scratch is too expensive for CIT and takes too long to build to help any time soon,” reported Bloomberg.
New York-based CIT is a bank holding company with more than $60 billion in finance and leasing assets that provides financial products and advisory services to small and middle market businesses.
