CIT was at risk of failing an August debt payment, so they sought a government bailout. The government declined, and suddenly CIT was going to fail in a day (never quite understood that one). This weekend, CIT worked out a deal with a few creditors. Bloomberg reports in CIT Bondholder Pact Proves Life After Death With Markets Rescue:
CIT, led by Chief Executive Officer Jeffrey Peek, is receiving a $3 billion secured term loan with a 2.5-year maturity, the New York-based firm said yesterday. Loan proceeds of $2 billion are available immediately and the rest is expected within 10 days, the company said. CIT has $1 billion of notes that mature Aug. 17, and is asking investors to swap them for 82.5 cents on the dollar.
CIT will pay interest of 10 percentage points more than the three-month London interbank offered rate, people familiar with the matter said earlier yesterday. Libor, a lending benchmark, was set at 0.51 percentage point.
The rescue of CIT by bondholders may not mean the company will recover and avoid bankruptcy, said Adam Steer, an analyst at CreditSights Inc. in New York. It only “means they’re not going to file tomorrow,” he said.
This is accurate. CIT will not fail in August. However, I think they still have a very good chance of failing in April. In fact, I think this is almost certain. There’s very little reason for anyone to bail them out for the next round of needed financing. Also from Bloomberg, CIT Rescue Group ‘Ripped’ Lender With 5% Fee, Collateral Demand:
Pacific Investment Management Co., Centerbridge Partners LP and the four other bondholders that put up $2 billion in financing for CIT Group Inc. made an instant $100 million on an investment analysts say is almost risk free.
CIT, the 101-year old commercial lender struggling to retire $1 billion of debt maturing next month, agreed to pay a 5 percent fee to the creditors and annual interest of at least 13 percent. On top of that, the New York-based company pledged assets worth more than five times the amount of the loan as collateral.
“The terms are egregious,” said Dwayne Moyers, the chief investment officer at Fort Worth, Texas-based SMH Capital Advisors, which oversees $1.4 billion, including more than $70 million of CIT bonds. “They ripped the faces off everyone with these terms.”
CIT, led by Chief Executive Officer Jeffrey Peek, said in a regulatory filing yesterday that the loan doesn’t solve the funding challenges and it may be forced to seek bankruptcy protection unless holders of $1 billion in floating-rate notes due Aug. 17 accept 82.5 cents on the dollar for the debt.
The claims on the corpse have already been made. It’s not even a corpse yet. There’s no reason for anyone else to loan CIT money after this. If the government doesn’t provide a bailout before the April deadline, CIT is toast.
I’m quite bothered that corporate strategy these days is to go to the government for a bailout first. CIT actually tried to negotiate with bondholders, but they wanted to see if the government would provide a little incentive before they’d actually negotiate. This is an unsustainable state of affairs.
