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.