CIT Group Inc. secured an emergency financing package from its creditors, staving off the prospect of imminent bankruptcy.
Under the terms of deal, which the New York Times reported was struck one minute before a CIT-imposed deadline, six of the company's creditors will extend $2 billion in loans as the commercial bank attempts over the next ten days to secure an additional $1 billion.
For the past few weeks, CIT executives have been in a mad scramble to rescue their teetering firm. The company made large investments in housing-related derivatives and has a $2.1 billion payment to creditors looming early next year.
CIT received $2.3 billion in bailout financing last year under the Troubled Asset Relief Program, but federal regulators decided last week against extending further assistance in the form of loan guarantees. As it pursued the latter option, the company also hired a major law firm to prepare for bankruptcy.
The creditors, which include the money management firm Pacific Investment Management Co. and the investment firm Centerbridge Partners, would face significant losses if CIT went bankrupt. To protect their investments, they agreed to further financing but demanded a 10.5 percent interest rate.
CIT is paying 5 percent on the taxpayer money it received through TARP.
CIT also announced yesterday that it had initiated a program to buy back $1 billion outstanding debt. According to the New York Times, CIT will pay $825 for every $1,000 of company bonds redeemed by the end of July. It will pay $800 for every $1,000 afterwards.
Despite the deal with creditors, CIT continues to face serious challenges and bankruptcy remains a distinct possibility. "All they're doing is buying themselves some time," Sameer Gokhale, an analyst with Keefe Bruyette & Woods, told the Times.
Under the terms of deal, which the New York Times reported was struck one minute before a CIT-imposed deadline, six of the company's creditors will extend $2 billion in loans as the commercial bank attempts over the next ten days to secure an additional $1 billion.
For the past few weeks, CIT executives have been in a mad scramble to rescue their teetering firm. The company made large investments in housing-related derivatives and has a $2.1 billion payment to creditors looming early next year.
CIT received $2.3 billion in bailout financing last year under the Troubled Asset Relief Program, but federal regulators decided last week against extending further assistance in the form of loan guarantees. As it pursued the latter option, the company also hired a major law firm to prepare for bankruptcy.
The creditors, which include the money management firm Pacific Investment Management Co. and the investment firm Centerbridge Partners, would face significant losses if CIT went bankrupt. To protect their investments, they agreed to further financing but demanded a 10.5 percent interest rate.
CIT is paying 5 percent on the taxpayer money it received through TARP.
CIT also announced yesterday that it had initiated a program to buy back $1 billion outstanding debt. According to the New York Times, CIT will pay $825 for every $1,000 of company bonds redeemed by the end of July. It will pay $800 for every $1,000 afterwards.
Despite the deal with creditors, CIT continues to face serious challenges and bankruptcy remains a distinct possibility. "All they're doing is buying themselves some time," Sameer Gokhale, an analyst with Keefe Bruyette & Woods, told the Times.
published July 21, 2009, 0 Comments
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