CIT Group Inc, the 101-year-old commercial lender seeking to avoid collapse, changed the terms of its $29 billion debt exchange to increase support among its bondholders.
Maturities on new notes issued in exchange for existing bonds will be shortened by six months, the New York-based company said yesterday in a statement. CIT will also boost the amount of equity offered to subordinated debt holders and include notes due after 2018 that previously weren’t part of the exchange offer or reorganisation plan.
CIT is seeking to reduce debt by at least $5.7 billion after being locked out of the unsecured debt markets it relies on for funding and posting nine quarters of losses totaling more than $5 billion. It turned to bondholders in July for $3 billion in rescue financing after failing to win access to a Federal Deposit Insurance Corp program to sell US-backed debt.
“Given our expectation for the exchange to fail, they would have to amend it to avoid bankruptcy,” Adam Steer, an analyst at CreditSights Inc in New York said in a telephone interview.
Under the amended terms, CIT also would include a “cash sweep mechanism” to accelerate repayment of the new notes; boost the coupon on Series B notes being issued by CIT Delaware Funding to 9 per cent from 7 per cent; and provide preferred stockholders contingent value rights in the reorganisation plan, according to the statement.
Moody’s Investors Service said that CIT may need to liquidate if too few investors agree to either the swap or a prepackaged bankruptcy. Credit rating firm Egan-Jones Ratings Co recommended that bondholders reject the offer. CIT said that Chairman and Chief Executive Officer Jeffrey Peek plans to resign at yearend.
Under the out-of-court restructuring, bondholders were to receive 70 cents to 90 cents on the dollar in the form of new debt, plus 94 per cent of the equity in the company, CIT said in a filing with the US Securities and Exchange Commission. This excluded most unsecured notes.
With the prepackaged bankruptcy plan, bondholders would have received 70 cents on the dollar in the form of new 7 percent notes, plus 83.4 per cent of equity in the reorganised company, according to a report from CRT Capital Group LLC in Stamford, Connecticut. This excludes most unsecured notes maturing after 2018, which are left in place, CRT said.
The exchange offer expires at 11:59 pm on October 29, according to the filing. CIT said that the offer to exchange notes due after 2018 will expire on November 13.
