Sunday, July 19, 2009

More on CIT Deal

by Calculated Risk on 7/19/2009 09:11:00 PM

UPDATE, Deal Approved by Board: From the NY Times CIT Is Said to Obtain Urgent Loan to Prevent Bankruptcy (ht Basel Too)

Directors of the CIT Group, one of the nation’s leading lenders to small and midsize businesses, approved a deal Sunday evening with some of the bank’s major bondholders to help it avert a bankruptcy filing through a $3 billion emergency loan ...
From Reuters: CIT bondholder plan backed by unsecuritized assets (ht jb)
"The $3 billion is new money but securitized by all the remaining unsecuritized assets which probably exceed $10 billion," the source said.
A few points:

  • This is new debt at a reported 10% plus LIBOR rate. This is not debt for equity. This is essentially a bridge loan, with a reported 2 1/2 year term.

  • This deal hasn't has received CIT Board approval (UPDATE Above: Deal Approved).

  • This new debt is apparently secured by all the remaining unsecured assets of CIT. This probably means CIT will survive through 2009 (if approved), but long term debt holders will be behind this debt.

  • The parties are trying to negotiate a debt-for-equity swap, and that would probably seriously dilute current shareholders.

  • This doesn't solve the problem, just kicks the can down the road.

    Other story links:
    WSJ broke the story: Bondholders Plan CIT Rescue

    NY Times: CIT Is Near Deal for $3 Billion Loan to Avert Bankruptcy