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CIT Averts Bankruptcy: Another Sunday Night Save </h3>
It is good to hear that the 'well capitalized' CIT was able to strike an eleventh hour deal with its creditors and financiers to avoid an ugly bankruptcy.
Now if only the United States can do the same thing for itself with its bondholders...
Financial Times
CIT seals rescue package
By Henny Sender and Francesco Guerrera in New York
July 20 2009 04:31
CIT on Sunday night clinched a two-year, $3bn rescue financing with its creditors that will enable the troubled US finance group to avoid a bankruptcy filing.
After round-the-clock weekend talks that included the possibility of a Chapter 11 filing,
CIT and its main creditors sealed an agreement on the financial lifeline, according to people close to the situation.
“This paves the way for an orderly restructuring of the balance sheet with time and capital,” said one participant in the likely financing. “And it will give CIT’s customers plenty of capital.”
The company, which provides finance to nearly a million small and medium-sized companies in the US, and its creditors had to
move quickly to arrest a slide into bankruptcy and prevent its best customers from defecting for fear that the lender could no longer support them.
(We had thought the problem was that their customers had no alternative - Jesse)The group of
at least six creditors who are planning to provide the capital comprise a mix of traditional money management firms and hedge funds who bought into the debt at much less than 100 cents on the dollar. They include Baupost, a Boston-based hedge fund, CapRe, hedge fund and private equity firm Centerbridge Partners, Oaktree Capital, Pimco and Silverpoint Partners. Barclays is expected to act as agent on the financing package.
CIT’s board met on Sunday night and approved the financing. If the agreement holds, CIT will have enough time to work out which, if any, assets it should sell. The next step will likely involve cajoling other holders to exchange their debt into equity and then, having demonstrated that CIT has a viable survival plan, to go to the government and ask for help.
Jeff Peek, CIT’s chief executive who led negotiations with creditors, was likely to stay on following the financing, people close to the situation said. The management has been criticised for diversifying into high-risk businesses such as subprime lending and student loans and relying on capital markets to fund CIT’s balance sheet.
CIT’s creditors stepped in after it became clear that the government was not willing to provide any emergency assistance, whether in guaranteeing CIT’s debt, or in accepting assets in exchange for cash from the Federal Reserve or in allowing CIT to transfer more assets into the bank holding company it set up at the end of December.
The rescue financing will come as a relief to the government – had CIT filed for bankruptcy protection, the Treasury would likely have lost the $2.3bn of bailout funds CIT received late last year.
It would also have been a huge embarrassment for the Fed, which had described CIT as adequately capitalised when it approved of its banking application.
The creditor-led rescue of CIT may stave off political criticism of the government’s handling of the crisis. If CIT had gone under, at least some of its smallest customers in the business world would probably have had a hard time finding alternative sources of capital, adding to economic weakness.
