WSJ: CIT is rescued ($3B loan with 10%+Libor rates)

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Bondholders Plan CIT Rescue
Lender to Small Firms Set to Get $3 Billion; Financing Would Stave Off Bankruptcy

By JEFFREY MCCRACKEN and SERENA NG

CIT Group Inc. appeared to have reached an agreement securing $3 billion in last-minute rescue financing from its bondholders Sunday in a deal that should keep the struggling lender out of bankruptcy court, people familiar with the matter say.

An announcement detailing the arrangement was expected to be released Monday morning.

The deal, which was reviewed by CIT's board Sunday night, charges CIT high interest rates, and it doesn't permanently fix the company's long-term financing needs, say people involved in the transaction. But it buys time for the lender to restructure itself, and minimizes bondholders' losses. Bondholders calculated they would lose more if CIT filed for bankruptcy and sold assets at fire-sale prices than if they offered the rescue.
[Bondholders Plan CIT Rescue] Bloomberg News

New York-based CIT Group is set to get $3 billion in rescue financing from its largest bondholders in a deal that should keep it out of bankruptcy court.

If the deal is completed, it could help strengthen CIT's financial position and alleviate pressure on CIT to pay down $1 billion in debt that comes due in August. It may also preserve the U.S. Treasury's $2.33 billion investment made as part of the Troubled Asset Relief Program.

The development appeared to vindicate U.S. regulators, who balked at appeals to help CIT. And it suggested that, unlike in recent months, private capital is available to plaster over cracks in the financial system.

Still, CIT and its bondholders hope that their effort to stabilize the company will cause bank regulators to look more favorably on a CIT plan to transfer more of the company's loans from the holding company to its bank in Utah. CIT has trouble borrowing money, but its bank can finance itself by taking in deposits. To transfer more assets to the bank, however, CIT needs an exemption from the Federal Reserve and a nod from the Federal Deposit Insurance Corp.

The final term sheet still needs to be reviewed by the various financial and legal advisers, said the people familiar with the matter. There is the chance that a final deal could falter over last-minute negotiations.

Under the proposal, CIT would likely pay interest rates 10 percentage points above the London interbank offered rate, said these people. (As of Friday, three-month Libor stood around 0.5%.) CIT has also agreed to pledge some of its highest-quality loans as collateral on the $3 billion package.

The new loan could act like a "bridge" to a series of debt-exchange offers that CIT would launch in order to get bondholders to swap some of their bonds for equity in the company or for new debt that matures later.

On Sunday afternoon, six of CIT's largest bondholders, including Pacific Investment Management Co., Oaktree Capital, Silver Point Capital and Centerbridge Partners, agreed to the proposal, which would see investors providing $3 billion in funds and committing to other steps to help strengthen CIT's financial position. Other bondholders, including Capital Research & Management and Baupost Group, are also part of the proposal.

Each bondholder would take up a portion of the loan, which isn't evenly divided among the six-fund group. Each one is on the hook for hundreds of millions of dollars each, said a person involved in the talks.

Under the proposal, CIT chief executive Jeffrey Peek would likely stay in his current role. Mr. Peek was "actively involved" in the weekend talks, according to a person close to the company.

The deal was crafted in less than 48 hours, which one person involved in the talks said was potentially risky for investors. "They didn't get to do the due diligence you'd normally get to do."

CIT, founded in 1908, is a lender to around one million mostly small and midsize businesses ranging from restaurants and private schools to clothing makers. It also leases railcars, aircraft and equipment, and has a large business providing cash to manufacturers and collecting on their invoices.

For years, CIT funded its activities largely by selling bonds -- only to find itself in trouble when credit markets froze up a year or so ago.

At least one analyst viewed the deal as a stopgap. "Even if they put together a deal today and postpone a bankruptcy filing, CIT may be back in the same place in the not-too-distant future because unemployment rates, business-loan delinquencies and corporate default rates are climbing," said Martin Weiss, president of Weiss Research, an investment consulting firm in Jupiter, Fla.

Late Thursday night, CIT officials believed they had secured a $2 billion rescue-financing plan from J.P. Morgan Chase & Co. But that fell through by Friday morning, said these people.

J.P. Morgan would have considered lending if CIT were first to seek bankruptcy protection, but the bank "couldn't get comfortable with a deal outside (bankruptcy) court," said one person familiar with the matter.

CIT's advisers, which includes investment bank Evercore Partners, then launched talks with its bondholders, led by investment firm Centerbridge Partners.

By 5 p.m. Friday CIT had sent its first term sheet to bondholders, who were represented by investment bank Houlihan Lokey and law firm Paul Weiss, the two firms that advised General Motors Corp. bondholders.

Another advantage for the CIT bondholders lending the money is that they hold large chunks of bonds that come due in the next few months and will see that debt paid off in full, even if they bought it at a steep discount recently, while also being paid high interest on their loans. Rival bondholders said they had also tried to cut a deal with CIT, but never really got time with the company.

The past few days, some of CIT's customers -- retailers and manufacturers with loans from CIT -- told the company that they feared their businesses would suffer if CIT filed for bankruptcy protection because suppliers would be worried about getting paid.

"I hope (Sunday's proposal) works out for CIT and that it will get enough time and room to sort itself out," said Frank Foley, chief executive of CHF Industries Inc., a New York-based maker of beddings and curtains and a customer of CIT's commercial-finance division.

小亥

10%+Libor rates? This is how desperate they are now.

mary666

thx