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.