CIT Group Receives $1 Billion Loan from Icahn

AP
October 30, 2009

Commercial lender CIT Group Inc. said Friday that billionaire investor and bondholder Carl Icahn agreed to support the company's restructuring plan amid reports CIT may soon file for bankruptcy protection.

Icahn also agreed to provide CIT with a $1 billion line of credit.

Icahn has been an outspoken critic in recent weeks of New York-based CIT Group's plan to restructure its debt in an effort to avoid collapse. CIT, one of the largest lenders to small and midsize businesses, has been trying to reduce its near-term debt burden by $5.7 billion.

"Our ability to secure an incremental $1 billion committed line of credit from Mr. Icahn's affiliates supports our restructuring plan and helps ensure our ability to continue to serve our existing small business and middle market customers," CIT spokesman Curt Ritter said.

On Wednesday, CIT received a $4.5 billion line of credit from lenders and other bondholders who had already provided it with $3 billion in financing over the summer.

Thursday marked the last day most CIT debtholders could agree to exchange their bonds for new debt that matures later and stock. Results of that exchange have not yet been released.

The company said earlier Friday it was still tabulating the votes.

Even if bondholders approve the debt restructuring plan, the company could still file for bankruptcy protection. At the same time they were asked to agree to swap their debt, bondholders were also asked to approve a prepackaged bankruptcy plan.

The Wall Street Journal, citing unidentified people, said the exchange offer likely failed and the company would file for bankruptcy protection as soon as Sunday night.

Ritter declined to comment on the likelihood of a bankruptcy filing.

A prepackaged bankruptcy, which would have the support of major bondholders, would speed up the process of restructuring CIT's debt and allow it to return to normal operations faster than a traditional bankruptcy filing.

CIT said Icahn's $1 billion loan would be available even if it files for bankruptcy.

Icahn had railed against the company's plan over the past week, calling it unfair to small bondholders. Earlier in the week, he offered to buy CIT's debt for 60 cents on the dollar from debtholders who agreed to reject the exchange and prepackaged bankruptcy offer.

Icahn said in a statement Friday afternoon that because he changed his stance on the offer, he will buy CIT's debt from bondholders regardless of their vote.

The agreement between Icahn and CIT came after the company agreed to make some changes to its offer, Icahn said. One of his biggest complaints about the plan was it would keep the board intact. On Wednesday, CIT said it would accelerate changes to its board of directors if it files for bankruptcy.

A failure by CIT could hurt an economy already struggling to recover, especially the retail sector. The company is a short-term financier to 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation.

CIT has been struggling as its costs to borrow money have eclipsed the income it generates from lending money. CIT lost its primary source of funding last year when the commercial paper market nearly collapsed at the peak of the credit crisis and has yet to recover.

Shares of CIT dropped 23 cents, or 24.2 percent, to close at 72 cents in Friday trading.

CIT Moves Closer to Pre-Packaged Bankruptcy Approval

Reuters
October 30, 2009

CIT Group has met at least one of the hurdles necessary to file for a prepackaged bankruptcy, sources said, bringing the commercial lender one step closer to the fast bankruptcy process it is seeking to lower its liabilities and get back to health.

Holders of about 90 percent of its unsecured bonds have approved the prepackaged bankruptcy, two sources familiar with the matter said late Friday. The company needed two-thirds approval.

But the company is still counting ballots to see if half of the voting bondholders have approved the deal, a necessary condition, according to a person familiar with the matter.

The 101-year old company is widely expected to clear that hurdle, and could file for bankruptcy as soon as this weekend.

CIT had been working hard to win bondholder support for its plan to restructure, and earlier Friday announced key agreements with creditors, including support from Carl Icahn, who had previously been the main opponent to the company's plans.

CIT also announced an agreement with Goldman Sachs Group that would reduce a $3 billion credit line to $2.125 billion but, critically, keep the line open during a bankruptcy.

"It looks like everything is pointing to a prepack," said Adam Steer, an analyst at CreditSights in New York. "Their best option is to turn off the lights and work their balance sheet down. It's pretty clear at this point."

The prepackaged bankruptcy plan involves giving bondholders new debt worth 70 pct of the face value of their old debt, plus giving them an ownership stake in the company equal to about 92.5 percent of the common stock.

Current preferred shareholders, including the government's $2.33 billion paid to CIT under the Troubled Asset Relief Program, will be converted into 5 percent of the company's common stock. Current common shareholders will get 2.5 percent of the new company.

CIT warned last week that if investors did not support its restructuring efforts, it could end up filing for bankruptcy without a plan for how to fix itself. Exiting bankruptcy could take a long time and destroy much of the company, CIT's management said in a presentation.

"We're all glad this is behind us and that we can now consummate this transaction and hopefully make bondholders some more money," said Jeff Werbalowsky, chief executive of Houlihan Lokey, the adviser to CIT bondholders.

"The company did the right thing in putting this behind us, and that's where this needs to be for a quick and successful restructuring."

CIT had sought to get support from bondholders to exchange their old debt for new securities, or to agree to a pre-packaged bankruptcy. The votes were due by the end of Thursday, October 29.

The debt exchange was widely seen as doomed to fail, given the number of competing interests involved.

CIT was once the largest lender to small and medium sized business in the United States. It said in a presentation earlier this month that it hopes to move key operations, such as vendor financing and small business lending, into its bank unit. That bank unit can then fund lending through deposit borrowing.

CIT Presses Bondholders to Agree to Restructuring

Reuters
October 23, 2009

CIT Group Inc warned bond holders that if they failed to exchange their debt or approve a prepackaged bankruptcy, the commercial finance company -- and its debt investors' returns -- could suffer mightily.

The company said that, without a debt exchange or an orderly bankruptcy, the company would have to liquidate, an expensive process that could leave unsecured bondholders with somewhere between 6 cents and 37 cents on the dollar. These bonds were trading just above 60 cents on the dollar earlier on Friday.

"Let's be clear. A free-fall bankruptcy will ... result in a lower recovery for today's unsecured bondholder," CIT Chairman and Chief Executive Jeffrey Peek said in a pre- recorded webcast presentation.

CIT's restructuring plans were almost immediately slammed by billionaire investor Carl Icahn, who snapped up CIT debt in the past few months to become what he says is the company's largest bondholder.

New York-based CIT is trying to restructure its debt through getting debt holders to exchange their debt, or to agree to a pre-packaged bankruptcy. It is also looking to boost a $3 billion secured credit facility by another $4.5 billion.

Once the company restructures its liabilities, it can try to move some of its businesses into its regulated bank subsidiary and fund them with deposits instead of bonds.

Icahn said a better plan is to try to move businesses into the bank within nine months. If that does not happen, the company should wind itself down and pay out proceeds to debt holders. Icahn said that, if the company pays off its debt with money from maturing assets, his bonds could be worth 80 cents to 85 cents on the dollar.

"CIT would have you believe that a bankruptcy would be calamitous. We do not believe this to be the case," said Icahn, who made much of his fortune over the years buying controlling stakes in distressed companies.

Icahn has been increasingly active in companies in bankruptcy court this year. This summer, he was approved by a court to provide part of the bankruptcy financing for auto parts maker Lear Corp, a company he had once had a large equity position in and tried to acquire. He also received approval from a bankruptcy court to buy Tropicana Casino and Resort in Atlantic City.

Time is running out for CIT. The company has until Oct. 29 to restructure its debt or get approval for a prepackaged bankruptcy. In the beginning of November, about $1 billion of its debt matures...

CIT makes loans mostly to small and medium sized businesses and also has a large factoring business that services the retail sector.

Goldman Sachs Could Earn $1 Billion from Potential CIT Group Bankruptcy

Before You Invest
October 6, 2009

Goldman Sachs will earn a $1 billion payout if commercial lender CIT Group goes into bankruptcy, according to media reports.The payment would be due under the terms ...

Goldman Sachs will earn a $1 billion payout if commercial lender CIT Group goes into bankruptcy, according to media reports.

The payment would be due under the terms of the $3 billion rescue deal it agreed with CIT in 2008.

CIT saw the value of its stock plummet to less than $2 per share on last week’s New York Stock Exchange.

Last year, it was cut off from its traditional source of funding, the commercial paper market, forcing it into the credit facility deal with Goldman Sachs.

The US government also bought more than $2 billion of CIT shares as part of the Troubled Asset Relief Program in December 2008.

But in July the company failed to secure a second US bailout after asking for a further $3 billion in rescue financing.

CIT chief executive officer Jeffrey Peek has asked bondholders to swap unsecured obligations for new secured debt and preferred shares, in an attempt to stave off bankruptcy.

Goldman Sachs, CIT in Talks to Amend Loan Terms

Reuters
October 5, 2009

Goldman Sachs Group Inc said on Monday that it is in talks to amend the terms of a $3 billion loan to CIT Group Inc, the Wall Street Journal reported.

The investment bank is expected to receive about $1 billion if commercial lender CIT were to file for bankruptcy, the Wall Street Journal said. This is a point of contention as the company battles to raise additional funds as part of its broader restructuring plan, the Journal said.

CIT is studying several options for the loan from Goldman Sachs, one of which is trimming the $1 billion payment, the Journal said, citing a person familiar with the situation.

"Goldman Sachs is working with CIT and its creditors to enable it to continue to use the facility, which we believe gives it an attractive cost of funding, particularly relative to the other financing that has been provided to CIT at less attractive levels," Goldman Sachs said in a press release on its website.

Goldman spokesman Michael DuVally declined to comment further.

CIT spokesman Curt Ritter declined to comment on the report.

Goldman extended $3 billion in funding to CIT in June 2008, according to regulatory filings. The 20-year contract, which was set as the credit markets froze, calls for CIT to pay Goldman 2.85 percent of the maximum amount lent. That translates to about $85.5 million a year for the first 10 years of the agreement, the Journal said, and CIT would be required to pay $1 billion if it were to file for Chapter 11 bankruptcy.

Citing a Goldman Sachs internal memo, the Wall Street Journal the financing for CIT required the bank to "establish long-term funding" of its own, which it is obligated to pay even if the CIT facility is paid off early or CIT files for bankruptcy. The $1 billion payment is "designed to cover Goldman Sachs in such an event," according to the memo.

CIT, a century-old company that is one of the largest lenders to thousands of small and medium-size businesses, pays roughly 10 percent interest on its latest loan. Goldman's loan, made before CIT acknowledged massive financial problems, charges about 3 percent interest, the Journal said.

CIT's Collateral Damage

Georgia small businesses brace for the potential loss of a major funding lifeline.

Business to Business
July 24, 2009

The teetering fortunes of troubled commercial lender CIT Group are setting off increasingly urgent alarms for Georgia retailers, and even an 11th hour deal to at least temporarily forestall bankruptcy is bringing scant reassurance for stores and their suppliers waiting for another shoe to drop on their bruised industry.

"I think if CIT goes 'bye-bye,' there are going to be tons of independent (retailers) going 'bye-bye' and several manufacturers going 'bye-bye' too," warns Jeffrey Gardner, owner of Cornerstone Furniture in Atlanta. "CIT is a big part of this business."

"My guess is there are 10,000 to 20,000 retailers in Georgia who would be affected by this," agrees John Heavener, president of the Georgia Retail Association. "And it's not just retail. When sales started to drop, state revenue dropped precipitously. The states and counties now are having budget crunches. Almost 19 percent of workers in Georgia work in retail. It's a link effect to all other parts of the economy."

Strapped by shrinking access to capital, the 101-year old CIT Group called for help last year and received a $2.3 billion federal infusion. But in mid-July, its second appeal for aid was turned down in a move seen as a sign the Obama administration has reached its limits for corporate bailouts. That brought speculation that the company would file for bankruptcy protection in a matter of days.

Appeals from the retail industry have declared the company too important to fail. "I think it would be very, very damaging," Heavener cautions.On July 20, CIT announced it has reached a $3 billion agreement with its bondholders to keep the company afloat, and CEO Jeffrey Peek promised "a restructuring plan that will better position our company for the long term." But observers say the company's long-term outlook is far from hopeful, with CIT needs a daunting $7 billion just to address debts coming due over the next year. "It's a stopgap," grants Heavener. "Everything is stopgap now."

Who is CIT?

Long a source of funding for small and midsized businesses, CIT today stands out most significantly for its role as a financial intermediary between retailers and suppliers in a practice known as "factoring" or "factor financing." When placing an order, retailers often lack the cash to pay for merchandise up front, but manufacturers and vendors need that money for costs such as raw materials, rent, utilities or employees salaries. As a "factor," CIT provides short-term financing to bridge that gap by buying the accounts receivable from the supplier and subsequently taking payment from the retailer.

"A lot of times, they won't even ship you. They won't ship you unless you factor through something like CIT," explains Jimmy Huff, vice president of Atlanta-based Huff Furniture, who factors with CIT for five of his manufacturers.

It's a highly specialized niche, one in which the National Retail Federation says CIT is almost unique, especially now that the other major name in the field, GMAC, has moved away from factoring in the midst its own government bailout. The American Apparel & Footwear association estimates that CIT does 60 percent of the factoring for the U.S. apparel and footwear industries. "CIT is really the one big player," says J. Craig Shearman, vice president of governmental affairs with the National Retail Federation. "There are a bunch of small players, but it's doubtful even whether all of them together are big enough to pick up the slack."

With a 56-year history, Huff believes his company has plenty of credit to weather a possible demise of CIT, but he worries about smaller, entrepreneurial companies with little cash on hand and limited credit, especially in today's lean lending environment. "It probably will affect some of the newer businesses, the startups. They aren't well known. They are needing to get that credit so they can keep doing business."

Domino effect

"It would be just disastrous, another bad thing to happen to the economy" says Diane, not her real name, whose family business in Atlanta factors through CIT Group. "I just think people are not aware of how big, how important they are to the small-business economy."

Diane asked that neither she, nor her company be identified, demonstrating a concern that Shearman says has become common. "Most of the retailers we have spoken to have actually asked us not to use their names because they don't want anything associated with a particular company. They don't want people to think 'oh, there's going to be a shortage of sweaters at such and such a place this year.'"

But shortage is exactly what some industry representatives are predicting if CIT is suddenly removed from the equation, creating a hole in Georgia's supply chain just in time for the industry's critical Christmas shopping season. If already strained retailers must suddenly come up with their own cash, or search the current tight credit markets for alternate sources of credit to buy inventory, Heavener says they will likely simply buy less inventory. "Certainly people would have thinner shelves than normal for the holidays, probably less stock and probably increased prices because of that. We're going to see some retailers not even be open for the holidays – not only not have inventory, but not even be open."

"It's like prepaying for your house," explains Sean Ergle, owner of Area Urban Interiors in Atlanta, who has become all too familiar with the perils of retailing without factoring support. He was cut off by CIT in a payment dispute a year ago and has had to come up with other ways to pay his vendors since. "Retailers cannot survive delivering a prepaid product unless they have tons of capital. We started our business with a couple of thousand dollars and charged up the credit cards, but the debt ... it's a vicious cycle."

It makes it difficult sometimes to explain time lines," Ergle points out. "Normally we can sell something and have it in four to six weeks. So I have to explain to the customer why it's not here. When the customer pays a thousand dollars for something, they want it when they want it."

It's a scenario Camille Sheppard is eager to avoid. Owner of Atlanta apparel supplier Camille and Company, she estimates that fully half of her business is factored through CIT group and she's trying to make contingency plans. "We're going to talk to our banks, talk to our credit cards, see if we can get extensions. We're going to talk to our vendors and see if we can work with them directly."

Georgia retail advocates say they're holding on to cautious hope that, given the newest arrangement with its bondholders, CIT can shore up its finances enough to keep the merchandise flowing, especially as businesses try to strike deals for the holiday season. Says Heavener: "I think that we have a reprieve that may give us some breathing space. I think a long-term solution has yet to be found."

"It's definitely not over," echoes Shearman, who sees the deal buying time for the government to reconsider stepping in. The next critical point for CIT is a tender offer in which it plans to buy back $1 billion of its debt for 82.5 cents on the dollar by August 17. If enough bondholders agree, a major deadline will be defused. If not, the company could be flirting with bankruptcy again in a matter of weeks, and reports on Friday have emerged about breaking up the company to avoid bankruptcy.

"Nothing has been decided yet," says Sheppard. "I don't know if I'm going to have a problem going forward for the fall or not. Right now we're in limbo."

Local Retailers Make Provisions in Case of CIT Bankruptcy

Philadephia Inquirer
July 21, 2009

Devising backup plans as CIT Group teetered on the brink of bankruptcy made for aggravating times last week, says Urban Outfitters chief financial officer John Kyees.

So it was a relief yesterday when the New York financial institution - a critical player in retailing, whose loans in the "factoring" market are important for merchandise deliveries - apparently averted bankruptcy with emergency funding.

Now, even if CIT's finances unravel down the road, Philadelphia-based Urban Outfitters has protected itself.

"We're well-prepared," Kyees said, "because we're identifying all the vendors that are factored by CIT and working with our merchants."

Hustle was the order of business among retail executives alarmed by the news that CIT's financial distress might lead to a Chapter 11 bankruptcy declaration. Officials at Urban Outfitters and Boscov's Department Store L.L.C., based in Reading, worked the phones to ensure that even if CIT were to go under they would continue receiving merchandise.

"We're sending letters to all of them asking, if something were to happen to CIT, what is their plan," said Albert Boscov, the retail chain's chief executive.

At Urban Outfitters, "we called our folks at Wachovia, who are now Wells [Fargo], and said, 'How would you feel about factoring if CIT fell apart on some of our vendors?' and they said, 'No question,' " said Kyees, whose company is cash-rich despite the economic malaise. "Our balance sheet is pristine."

Beyond its role as a commercial lender, CIT Group is the nation's largest issuer of short-term loans in the factoring market.

When smaller and midsized manufacturers and vendors are ready to ship an order to a retail chain, they turn to a so-called factor to pay them in full for the shipment.

That gives retailers up to three months to review the order before paying for the goods. Manufacturers, meanwhile, get the cash and can move forward.

The factor charges interest, and, like a bank, also takes full responsibility for collecting payment from the retailer. If a retailer goes bankrupt or can't pay for what it received, the factor gets stiffed - not the vendor.

Because of that, the factor also evaluates a retailer's creditworthiness before agreeing to front money for a shipment - something that helps keep midsize vendors from getting bruised.

"The small manufacturer, they don't have a big credit department," said Boscov. "They don't have analysis. So to them, getting someone who says the day you ship, 'We're going to give you the money, and you don't take the risk,' is a tremendous asset to small manufacturers."

If CIT were to disappear from a field it now dominates, thousands of vendors and manufacturers would be left scrambling to find another short-term lender such as a bank - an intense task in a tight credit market.

Cash-strapped vendors also could demand full payment at time of delivery - a tactic more often employed when a beleaguered retail company is no longer deemed worthy of credit.

"Very few retailers will pay up front, to make sure they get the goods and the goods are in the right quantity and so forth," Boscov said. "So it's a real problem." His stores buy from 350 vendors and manufacturers who use CIT as a factor.

Urban orders merchandise from 140 vendors that use CIT as a factor, mostly for goods shipped to its 266 Anthropologie and Urban Outfitters stores, Kyees said.

Neither retailer has reported delivery problems so far.

In the case of Boscov's, CIT also is one of four lenders holding a slice of a $200 million loan that financed the chain's emergence from bankruptcy last year. Boscov said the other lenders would cover CIT's loan obligations if necessary.

Were CIT to fail, it could potentially disrupt back-to-school and holiday shipments from vendors such as "the $50 million-a-year T-shirt company rather than one of these big companies like Jones [Apparel] or Liz Claiborne," said Wharton retailing expert Stephen J. Hoch.

But with word of CIT's temporary reprieve, through a $3 billion deal with major bondholders, such fears have receded a bit.

"Better that it get sorted out now," Hoch said, "than . . . crunch time."

Palo Alto Software: Small and Medium Businesses Getting Short Shrift… Again

Palo Alto Software's Notes
July 21, 2009

The private funding of CIT Group this week highlights once more how small- and medium-sized businesses, the backbone of the day-to-day American economy, are getting short shrift from the federal bailout and economic recovery programs.

CIT Group, Inc. is one of the nation’s prominent lenders, supporting more than 1 million small- and medium-size businesses, including some 2,000 vendors providing some 300,000 retail stores with merchandise. During the financial meltdown CIT continued to provide loans and financing to keep American small businesses running when the major banks hoarded their emergency bailout funds, and severely curtailed or ceased providing loans and financing to small businesses altogether. Now, faced with possible bankruptcy, CIT is about to secure a rescue loan from its existing bondholders.

Isn’t this how these things have been going all along?

The big super-corporations get bail-out loans, but local community small businesses can’t get bank lines-of-credit or short-term bridge loans to stay in business.

The big mortgage lenders get a helping hand as a reward for their bad decisions, but at the same time small businesses are closing, and their now-unemployed workers and owners lose their homes through mortgage foreclosure.

The CEOs and financial wizards who precipitated the crisis are squabbling over salary and bonus packages larger than some communities’ entire annual budgets, yet unemployment is at its highest rate in a century.

Some of the huge manufacturing industries, which employ less that 20% of American workers, get the big bailouts; meanwhile local, smaller companies, employing the vast majority of us, who provide us all with our daily product and service needs, have to resort to bootstrap financing to stay in business.

And now this. One of the few financial institutions that has continued to support American small- and medium-sized businesses is having to bootstrap-like finance itself, having been denied similar emergency financial assistance by the federal government. And there is no guarantee that the loan from current bondholders will be enough. As lack of financial support programs forces more local businesses to fail, the liquidity squeeze tightens on CIT. If CIT fails, then more local companies will be forced out of business. A bad downward spiral. In her What if CIT Group fails? WashingtonTimes.com post, Candice Choi looks at the implications. Other analysts fear a CIT failure will have a disastrous, major ripple effect throughout the entire retail economy.

If the economic recovery is going to happen anytime soon, the government, the top-level financial institutions, the investors and the holders of the wealth of this country are going to have to stop giving our small businesses short shrift.

What If CIT Group Fails?

Associated Press
July 21, 2009

You may not have heard of CIT Group Inc., but there's a good chance you've shopped in stores that it helps keep in business.

The New York-based bank is one of the nation's largest lenders to small and midsized businesses. Despite the scope of its customer base, however, CIT emerged from meetings with federal regulators Wednesday failing to secure the cash infusion it needs to avoid bankruptcy.

In turning CIT away, the Obama administration is betting that any ripple effect from the company's demise wouldn't pose a critical risk to economic recovery.

CIT is now rushing to raise billions of dollars in financing from debt holders. As the company fights for survival, here are some questions and answers about how small businesses and the broader economy are affected by CIT.

Q: First of all, what is CITGroup?

A: It's a century-old company that primarily provides lending to small and midsized businesses. To a much lesser extent, it also provides advisory services and leases out property such as airplanes and rail cars.

The company has been bought and sold a number of times over the years. Most recently, it was acquired in 2001 by Tyco International Ltd., which at the time was embroiled in an accounting scandal. To pay down debt, Tyco spun off CIT Group in an initial public offering in July 2002. CIT has been an independent public company since then.

Q: Who does CIT serve?

A: CIT says it serves more than 1 million business customers, most of them small or midsize businesses.

The company's clients run the gamut, but tend to be in industries considered riskier in the small business landscape, such as restaurants and retail. Dunkin' Donuts franchisees and Dillard's Inc. are among the company's clients.

The bank is also the nation's biggest lender for entrepreneurs and minority-owned businesses.

It's not clear what percentage of the country's small business lending market CIT Group holds, but the company is the ninth-largest commercial and industrial lender in the United States, according to Foresight Analytics.

As of March 31, CIT Group held 1.7 percent of the $1.4 trillion in commercial and industrial loans on bank balance sheets. (Those include loans to businesses of any size.)

Q: What role do small businesses play in the broader economy?

A: Small businesses provide about half of all private-sector jobs. According to the U.S. Small Business Administration (SBA), small firms generated 60 percent to 80 percent of net new jobs every year over the past decade.

Small businesses - defined as having fewer than 500 workers - made up 99.9 percent of the 27.2 million businesses in the country in 2007, according to the SBA. Just 17,000 were large businesses.

The odds aren't great for small firms, however. The SBA says that while two-thirds of new businesses survive at least two years, only 31 percent survive at least seven years.

CIT Group Scrambling to Avoid Bankruptcy

Fox Business
July 16, 2009

...If CIT fails, it would be the first major financial institution that the government allowed to fail since the collapse of Lehman Brothers late last year. The company is a key lender to more than one million businesses, with major clients like Dunkin Donuts and N.J.-based communications company Avaya.

Small and mid-sized companies also make up a large part of CIT’s clientele, as do retailers and retail manufacturers. There has been much speculation as to how the failure of CIT Group will impact small businesses, and on Thursday, the National Retail Federation sent a letter to Treasury Secretary Timothy Geithner and Federal Deposit Insurance Corp. Chairwoman Sheila Bair, defending the lender’s importance to the retail sector. The letter requested that the Administration aid the struggling lender, with the NRF President and CEO calling CIT “too important to the retail industry to be allowed to fail.”

“A failure of CIT would impact thousands of retailers and, consequently, the consumer spending that makes up two-thirds of our nation’s economy,” said NRF President and CEO Tracy Mullin. “That cannot be allowed to happen at a time when retailers are already struggling to survive the national recession.”

Mullin said the failure of CIT could lead to a disappearance of crucial short-term financing resulting in a shortage of merchandise for many retailers this holiday season.

Meanwhile, ratings agencies continue to downgrade the company’s debt. On Thursday, Standard & Poors downgraded CIT Group to CC from CCC+, while Fitch downgraded the company to a ‘C’ from a ‘BB-’, saying it was highly likely that the company would file bankruptcy in the “very near term”. DBRS downgraded the company’s rating to ‘CCC’ from ‘BB’.

CIT 'Hanging by Their Fingernails': Source

If Bondholder Deal Doesn't Go Through, Major Lender CIT Could File One of Largest Bankruptcies in History

ABC News
Sept. 30, 2009

Remember CIT? The major lender to small and medium-sized businesses that came back from the brink of bankruptcy in July? Now, CIT Group Inc. is back on the brink.

CIT Group Inc. shares plunged in premarket trading Wednesday, Sept. 30, 2009, as the commercial lender is reportedly trying to craft an exchange that would cut its debt and offer bondholders an equity stake in the company in a bid to avoid bankruptcy.

The company is furiously trying to work out a deal with bondholders that would wipe out around 30 to 40 percent of its more than $30 billion in debt, a source in the financial industry told ABC News, confirming a story in today's Wall Street Journal. If the bondholder deal falls through, the company will likely have to file for bankruptcy.

At this point, the source told ABC News, the century-old company is "hanging by their fingernails."

CIT had no comment.

The last-ditch effort to avoid bankruptcy is the latest chapter in a saga that has gone on for months. CIT accounts for around 60 to 70 percent of financing for small and medium-sized businesses such as Dillard's department stores and Dunkin' Donuts. But the company ran into problems after diving into subprime mortgage lending and student lending. In late July, CIT secured a $3 billion agreement with bondholders to stave off bankruptcy.

The bondholder agreement came days after the government said it would give no additonal bailout money to the company, after providing $2.3 billion in Troubled Asset Relief Program funds in December. Before the bondholder agreement was reached, CIT had asked the Federal Deposit Insurance Corp. to allow it to issue debt backed by the government, enabling the company to bring in cash and continue lending. But the FDIC balked, so CIT turned to the Treasury Department and the Federal Reserve. But the effort ended in vain.

On July 15, the Treasury said, "Even during periods of financial stress, we believe that there is a very high threshold for exceptional government assistance to individual companies."

The government's decision was a testament to the improvements in the financial system in the past year. If CIT had failed last fall or last winter, its collapse could have been catastrophic. But, this year, even though a CIT bankruptcy could be one of the biggest Chapter 11 filings in the country's history, the government was no longer compelled to help.

Gurus Who Sold and Who Kept CIT Group Inc.

Gurus Focus
October 19, 2009

(GuruFocus, October 19, 2009) Invest Guru Carl Icahn offers $6 billion to the troubled company CIT Group Inc. to replace the company’s tender offer to bond holders. He said the offer can save the company $144 million. The shareholder right advocator thinks the company’s own plan favor the larger bond holders and disadvantages the small guys.

CIT Group stock is trading high today. With a bankruptcy looming, the stock could be worthless, but Icahn’s message injected a dose of confidence in the company and investor is bidding the stock more than 20% higher.

Gurus Sold Out CIT

David Williams owns 3,000,000 shares as of June 30, 2009, a decrease of 40% of from the previous quarter. In the quarter ended on September 30, 2009, Williams sold out his position.

Earlier on, as the story unfolding, Martin Whitman sold out his holdings in the quarter that ended on 07/31/2009. HOTCHKIS & WILEY sold out his holdings in the quarter that ended on 06/30/2009. Dodge & Cox sold out his holdings in the quarter that ended on 06/30/2009. Richard Perry sold out his holdings in the quarter that ended on 06/30/2009.

Gurus Still Holding CIT

As of June 30, 2009, these were still Investment Gurus who held the stock:

1 Guru Increased Positions in CIT: David Dreman owns 55,445 shares , an increase of 78.02% from the previous quarter. This position accounts for less than 0.01% of the $3.12 billion portfolio of Dreman Value Management.

2 Gurus Kept Positions in CIT Unchanged or Slightly Adjusted: Charles Brandes owns 23,919,838 shares , which accounts for 0.28% of the $18.33 billion portfolio of Brandes Investment. Edward Lampert owns 15,406,937 shares , which accounts for 0.34% of the $9.71 billion portfolio of ESL Investments.

They may or may not have sold their positions since then, we will know for sure when they report their holdings later on this quarter.

Treasury Officials Received Millions from Goldman Sachs

By Kurt Nimmo, Infowars
October 15, 2009

Disclosure forms, according to Bloomberg, reveal that Treasury Secretary Timothy Geithner’s closest aides received millions of dollars from Goldman Sachs Group Inc., Citigroup Inc. and other Wall Street firms.

The henchmen include Gene Sperling, who last year took in $887,727 from Goldman Sachs and $158,000 for speeches mostly to financial companies, including the firm run by accused Ponzi scheme mastermind R. Allen Stanford. Another top aide, Lee Sachs, reported more than $3 million in salary and partnership income from Mariner Investment Group, a New York hedge fund, reports Bloomberg.

In addition to working for Goldman Sachs, Sperling is on the staff of the Council on Foreign Relations, where he serves as Senior Fellow for Economic Policy and Director of the Center on Universal Education. He is also an economic adviser for Hillary Clinton.

Sperling worked in the Clinton administration as the President’s National Economic Adviser and Director of the National Economic Council. He was tutored by bankster master criminals Larry Summers and Robert Rubin. Clinton called him “the MVP” of his Wall Street economic team.

Lee Sachs is described as Geithner’s “right-hand man handling the financial crisis.” He was on the board of directors of Bear Stearns. In 1998, he joined the Clinton administration in Rubin’s Treasury as deputy assistant secretary for government financial policy. Less than a year after getting the post, Lawrence Summers replaced Rubin as secretary and Sachs got a promotion to assistant secretary for financial markets.

“As part of Geithner’s kitchen cabinet, Sperling and Sachs wield influence behind the scenes at the Treasury Department, where they help oversee the $700 billion banking rescue and craft executive pay rules and the revamp of financial regulations,” Bloomberg continues. “Yet they haven’t faced the public scrutiny given to Senate-confirmed appointees, nor are they compelled to testify in Congress to defend or explain the Treasury’s policies.”

Goldman Sachs is at the very epicenter of the international bankster cartel on Wall Street along with Brown Brothers, Harriman, Lehman Brothers, Kuhn Loeb, Inc. J.P. Morgan, Chase and a handful of others. It is one of around a dozen or so global institutions that are allowed to purchase Bills, Bonds and Notes directly from the Treasury. It is among the top five investment banks in the world.

Goldman Sachs received billions of dollars – to be paid off by future generations of Americans – for its highly speculative credit default swaps. It was the largest single recipient of tax payer money in AIG bailout. The government had forked over $180 billion to AIG as of April of this year. The New York State Attorney General Andrew Cuomo announced in March that he was investigating whether AIG’s trading counterparties improperly received government money.

The presence of Gene Sperling and Lee Sachs in the Treasury is to say the least a conflict of interest. But then Timothy Geithner is a former chairman of the Federal Reserve Bank in New York and his predecessor, Hank Paulson, was the head of Goldman Sachs.

Goldman Sachs, the Federal Reserve, and the Treasury are basically one in the same. In July, former Reagan Treasury official Paul Craig Roberts asked: “Does the US Secretary of the Treasury work for the people or does he work for the banking system on Wall Street?” to which he replied, “He works for Goldman Sachs.”

“This bankster firm controls the economic policy of the United States,” Roberts said elsewhere.

Matt Taibbi, in his article in Rolling Stone, described Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

Goldman Sachs the vampire squid is not finished with the American people. It will soon profit from the emerging cap and trade scam cooked up by the globalists and banksters. Dianne Feinstein and Olympia Snow have introduced a bill to make the Commodity Futures Trading Commission (CFTC) the sole regulator of the carbon market created by cap-and-trade legislation.

The current chairman of the CFTC is Gary Gensler, formerly of Goldman Sachs. Gensler had worked diligently with master criminal Alan Greenspan to protect credit default swaps from regulation. He also worked hard to deregulate electronic energy trading, allowing Enron to rip-off billions.

The mega-bankster crime syndicate is a part owner of the exchanges where carbon allowances would be traded. It has spent millions of dollars lobbying for cap-and-trade legislation in anticipation of making billions of dollars at the expense taxpayers and consumers.

The CFTC and the cap and trade scam will be the next derivatives bubble.

Goldman Sachs and its operatives in the Obama administration, the Treasury, and the Federal Reserve will be there to profit obscenely.

You’re here to pay them tribute on the road to the New Serfdom.

CIT Investor Hopes to Press for More Equity

Reuters
October 7, 2009

An investor is trying to put together a group of bondholders to potentially press for a bigger stake in CIT as the struggling commercial finance company works to restructure its debt.

The investor, Little Bear Investments, owns subordinated CIT notes, or debt that would fare worse than regular unsecured corporate bonds if the company were to file for bankruptcy.

Little Bear believes that subordinated bond holders are taking too big a hit from CIT's proposed debt restructuring, Zach Prensky, managing director, said on a conference call on Tuesday.

A CIT spokesman declined to comment.

CIT last week said it would allow unsecured debt holders to exchange their securities for new secured debt and equity. But subordinated debt holders can only exchange their notes for equity.

Subordinated debt holders are a relatively small group in terms of CIT's overall balance sheet: the company has about $2 billion of debt in this class, compared to about $30 billion of unsecured corporate bonds.

But traders said the subordinated debt holders could also slow down the exchange or any bankruptcy process, creating a nuisance for larger investors.

Prensky said he is hoping to put together a group of investors to potentially demand twice as much equity as part of the exchange, or even more than that. Alternatively, the group could press for a promise from the company to pay extra money to the current subordinated debt holders if CIT's assets end up performing well enough. This sort of contingent liability would not appear on the company's balance sheet.

CIT is hoping to reduce its indebtedness by $5.7 billion as it struggles to repair its balance sheet and generate the cash flow required to repay maturing liabilities. But up to $1.9 billion of that reduction could come from giving equity to current owners of CIT subordinated notes.

Goldman Sachs: In Talks With CIT On $3 Billion Loan

Dow Jones Newswires
October 5, 2009

Goldman Sachs Group Inc. (GS) said Monday it is in talks to potentially amend the terms of a $3 billion loan to embattled CIT Group Inc. (CIT).

The investment bank is on tap to receive about $1 billion if troubled commercial lender CIT were to file for bankruptcy. This is a point of contention as the company battles to raise additional funds as part of its broader restructuring plan.

CIT is looking at a number of different options for the loan from Goldman Sachs, one of which is trimming the $1 billion payment, according to one person familiar with the situation.

The investment bank extended $3 billion in funding to CIT in June 2008, according to regulatory filings. The 20-year contract, which was put in place as the credit markets froze, calls for CIT to pay Goldman 2.85% of the maximum amount lent, which would come to about $85.5 million annually for the first 10 years of the agreement. CIT would be required to pay $1 billion if it were to file for Chapter 11 bankruptcy.

According to a Goldman Sachs internal memo, the financing for CIT required the bank to "establish long-term funding" of its own, which it is obligated to pay even if the CIT facility is paid off early or CIT files for bankruptcy. The $1 billion payment is "designed to cover Goldman Sachs in such an event," according to the memo.

"Goldman Sachs is working with CIT and its creditors to enable it to continue to use the facility, which we believe gives it its most attractive cost of funding," Goldman spokesman Michael Duvally said.

Jeffrey Peek, CIT's chief executive, is attempting to persuade bondholders with about $31 billion in debt to swap that for new secured debt worth at least $5.7 billion less and to extend debt maturities. If enough creditors sign on, this reduction in debt load will help CIT avoid bankruptcy court, for now. The company warned in July it may be forced to file for a pre-packaged bankruptcy after it failed to get additional financial aid from the government.

The company secured a $3 billion rescue loan from a group of its largest bondholders, including Pacific Investment Management Co., Oaktree Capital, Silver Point Capital, and Centerbridge Partners, at the end of July.

CIT is in talks with these bondholders, along with some banks, to provide additional funds that could be used as debtor-in-possession financing to fund CIT's operations if it is forced to file for bankruptcy protection, people familiar with the situation said last week. Alternatively, if the exchange offer succeeds, the money would make sure the company has enough cash to operate and could also refinance some secured debt, these people said.

CIT hasn't yet finalized the new loan, but banks are expected to be chosen over the next few days to arrange the loan, according to a person familiar with the situation.

CIT, a century-old company that is one of the largest lenders to thousands of small and medium-size businesses, pays roughly 10% interest on its latest loan. Goldman's loan, made before CIT acknowledged massive financial problems, charges about 3% interest.

Duvally said the $1 billion payment the investment bank would receive in the event of a CIT bankruptcy "would not be a windfall payment." Instead, it would reflect the "present value of the spread to be earned over the life of the facility," Duvally said.

CIT declined to comment.

CIT Collapse Would Be a Mess, Turnaround Experts Say

October 1, 2009
Reuters

If struggling U.S. commercial lender CIT Group Inc were to collapse it would be a "drastic mistake" as the small businesses that rely on it would have few alternate sources of funding, turnaround experts said at the Reuters Restructuring Summit this week.

"I have a great fear of the collapse of CIT and that people don't understand the ramifications of what that can be," Lynn Tilton, chief executive of distressed investment firm Patriarch Partners said, adding she believed any collapse would result in millions of job losses at smaller U.S. companies.

"I think it would be a very, very drastic mistake in this country to allow CIT to go under," Tilton said.

CIT is planning to offer its unsecured debt holders an option to either exchange their debt voluntarily or face a pre-packaged bankruptcy, sources close to the situation said on Wednesday.

Shares of CIT fell 40 percent on Wednesday on fears that however the company rights itself, be it with a debt exchange or bankruptcy, equity holders will get little. But if those options do not work, there is unlikely to be any company able to fill CIT's shoes, the experts said.

"Over 80 percent of our workforce lies in small and mid-size companies, and yet there is absolutely no credit available to these companies," Patriarch's Tilton said.

"Large banks, who have been able to find their way back from the abyss, are not making these loans, and the regulators on the ground are telling them not to make these kinds of loans. It is not the best use of their capital. They are high risk. They are small. It takes a lot of energy. And our smaller regional and community banks are on the cusp of failure."

And while CIT's need to restructure has been telegraphed for months, retailers and other small businesses, which are particularly reliant on their funding, appear to have done little to prepare for a collapse, said Cory Lipoff, an executive vice president at Hilco Merchant Resources who works with distressed retailers.

"Everybody has adopted a wait-and-see attitude," Lipoff said. "Everybody is uncertain and cautious, but nobody is taking any actions right now," Lipoff said at the summit.

Part of the issue for retailers and other businesses that rely on CIT for loans, is that it remains unclear how a bankruptcy would affect their contracts, turnaround experts said. If CIT goes through a pre-packaged bankruptcy, or ends up with deals to sell some units, their loan contracts might not change at all. If its bond exchange is successful, there may also be no change.

"My partner went out and talked to retail lenders (about CIT)... and the message that came back is 'We're just going to wait and see how this all plays out over the next 60 days,'" Lipoff said.

Few financial companies have survived bankruptcy, but CIT believes its customers will continue to borrow from it even if it is reorganizing in bankruptcy court, the sources said.

But the lurking possibility of a free-fall bankruptcy could actually be useful to CIT in gaining support for its plans at this stage, another turnaround expert said.

"Clearly CIT is negotiating in the shadow of bankruptcy," said Corinne Ball, the attorney at Jones Day who led Chrysler through its bankruptcy earlier this year. Ball said the threat of bankruptcy can push the company's stakeholders to more "productive discussion" about what course to pursue and force bondholders to think about what they would get if the company were to fail.

CIT's Failure Could Threaten Financial Sector's Overall Recovery

Seeking Alpha
October 1, 2009

Just as the financial services industry seems to have made it past the worst of the economic meltdown, one small lender now threatens to reverse that trend. CIT Group (CIT), a lender to small and medium sized businesses, appears to be on the brink of collapse for the second time this year.

CIT Group averted bankruptcy over the summer, when it secured a $3 billion loan with its bondholders, and managed to tweak a giant tender offer for debt maturing shortly thereafter. The move served as a mere stopgap however, since the lender had a $2.9 billion negative cashflow position at the end of June this year.

With the moment of truth at hand once again, insiders say that CIT is attempting to prioritize nearer-term debt holders, a move which would dilute common stock holders by around 95 percent, leaving them almost wiped out.

Wednesday, traders pushed up the cost of CIT’s credit default swaps by 4 percent, to 26 percent; the implication is that the lender has a 45 percent chance of defaulting on its debt within three months, and an 85 percent chance of defaulting on its debt by 2014.

Meanwhile, CIT is also rumored to be recommending that bondholders approve a pre-packaged bankruptcy plan in case the new debt-exchange doesn’t go through.

Whatever the outcome, it’s clear that CIT doesn’t have the financial muscle to protect all parties involved.

For equity holders, any further financing efforts are likely to leave them holding the bag, since they are at the bottom of the heap in terms of having any claims on the firm’s assets. Holders of debt maturing later than next year look likely to experience some sort of default.

Most worryingly of all, for small businesses there really aren’t many other places they can go to get the kind of financing that CIT provides them with right now:

“Large banks, who have been able to find their way back from the abyss, are not making these loans, and the regulators on the ground are telling them not to make these kinds of loans. It is not the best use of their capital. They are high risk. They are small. It takes a lot of energy. And our smaller regional and community banks are on the cusp of failure,” said Lynn Tilton, chief executive of distressed investment firm Patriarch Partners said on Tuesday at the Reuters Restructuring Summit.

Tilton wants the firm to use the potential consequences of its own bankruptcy as a way for government officials to sit up and listen, and potentially step in to save the day. In that case, the result would be an additional fresh bailout package, just as it was thought that many financial services firms were weaning off their own and starting to raise money in the capital markets.

That in turn will make many of the recent bank share offerings much less attractive, as stock prices of small banks decline on fears of further CIT-style fallouts.

Followers of financials will be watching CIT like a hawk over the coming days, and so they should be. It genuinely appears now that the lender threatens to put a spanner in the works of much of this year’s momentum among financial services firms.

Goldman Sachs, Wilbur Ross Seeking to Buy CIT Assets

Reuters
September 29, 2009

CIT Group Inc is negotiating a new credit facility of up to $10 billion that could help the finance company pay off maturing debt and stave off bankruptcy, people familiar with the situation said.

The details of the facility are still being negotiated, and its size might be substantially smaller than $10 billion, two people familiar with the matter said. The company may forgo the loan altogether if it successfully renegotiates the terms of some of its existing credit lines, the sources said.

The existing credit lines include a $3 billion loan that CIT clinched from bondholders in July and a financing facility from Goldman Sachs.

CIT spokesman Curt Ritter declined to comment.

CIT shares rose 34 cents to $2.01 in afternoon trading, up 20.4 percent to their highest level since July. The company's bonds rallied too.

CIT is struggling to fund itself after losing access to the unsecured corporate bond market. The company has $3 billion of debt maturing in the fourth quarter, according to a quarterly filing in August. About half of that maturing debt is unsecured and must be refinanced or repaid from the company's dwindling cash holdings.

Regulators have put CIT Bank under a cease-and-desist order, preventing the unit from accepting new deposits. That bank was supposed to be a key source of funding for the company in the future.

The bank said in a quarterly filing that it hopes to restructure itself. If it is unsuccessful, it might have to file for bankruptcy, it said.

Analysts said CIT is struggling with real problems that may be difficult to solve even with additional loans in the near term.

"You can buy yourself a year of life, or maybe more, but then where are you? The world might get better and you might be able to borrow again in secured and unsecured bond markets, but there's no guarantee that it's going to play out that way," said Shawn Abboud, executive director of credit sales and trading at APS Financial Corp in Austin. Many of CIT's competitors are banks that have much cheaper funding costs.

SOME BULLISH

But some investors in CIT securities are much more bullish on the company's ability to avoid bankruptcy. One debtholder said the company could reduce its debt by exchanging current notes for new securities.

When it has more equity relative to its debt, regulators may lift the cease-and-desist order on its bank, allowing it to gather more deposits. CIT may also be able to sell assets, such as its railcar leasing business, and rely more on secured financing in the future, the debtholder said.

There may be interest in asset sales. Billionaire investor Wilbur Ross (former executive managing director of Rothschild Inc) told the Reuters Restructuring Summit on Tuesday that he would be interested in buying some CIT businesses. He also said he was interested in expanding his railcar leasing business, a unit that CIT has tried in the past to sell.

CIT shares have rallied in recent weeks, and the cost of protecting its debt against default has dropped, helped by rumors of a new credit. Under the terms of the $3 billion July loan, it must come up with a restructuring plan agreeable to lenders by October 1. That plan will likely include debt exchange offers, the company said in a regulatory filing in August.

Several investors who spoke to Reuters said they expect the company to offer new secured CIT debt to holders of short-dated debt, and to offer equity in the company to holders of longer-term debt. Investors may also get some combination of debt and equity, and perhaps even cash, to encourage them to exchange, debtholders said.

CIT's notes with a 4.25 percent coupon due in February 2010, the fifth most actively traded corporate bond in the U.S. market, rose on Tuesday to 76.5 cents on the dollar, from 74.5 cents on September 25, the last most significant trade, according to MarketAxess. That debt traded at 63.25 cents at the start of the month.