CIT Group Inc, the commercial lender that has said it may be forced to file for bankruptcy, is considering an offer of financing from Citigroup Inc and Barclays Capital, people familiar with the situation said.
The 101-year-old company’s bondholders are also seeking to provide about $2 billion in loans as a restructuring deadline approaches tomorrow, said the people, who declined to be identified because the negotiations are private. New York-based CIT may choose other options, the people said.
CIT said in July it may seek court protection from creditors after Chief Executive Officer Jeffrey Peek failed to win a second government bailout and had to turn to bondholders for $3 billion in rescue financing. The company said in an Aug. 17 regulatory filing that it has to come up with a plan “acceptable” to the majority of a bondholder steering committee that provided it with the emergency cash by Oct. 1.
“Some sort of secured financing is a likely component of the company’s restructuring plan, launched in conjunction with a debt exchange,” Brian Charles, a debt analyst at brokerage firm RW Pressprich & Co in New York, said in a telephone interview. CIT needs to raise $5 billion to $6 billion in financing to be able to make loans, he said.
CIT’s $750 million of 4.25 per cent notes due in February climbed 2.5 cents yesterday to 77 cents on the dollar, and have gained 14 cents since the end of August, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The company’s shares rose 53 cents, or 32 per cent, to $2.20 in New York Stock Exchange composite trading, and were trading at 1.25 euros ($1.83) at 10:44 am in German trading.
Citigroup, Barclays Capital and CIT spokesmen in New York declined to comment. About $9.14 billion of CIT loans and bonds mature through 2010, including $1.15 billion of debt securities by the end of this year, data compiled by Bloomberg show.
The restructuring plan for CIT, which had a net loss of $1.62 billion in the second quarter, may include selling business lines or assets, debt-for-equity-swaps and offers to extend debt maturities, CIT said in the Aug. 17 filing.
The company may be able to create $6 billion to $9 billion of capital by exchanging $30 billion of unsecured notes through debt swaps, Charles at Pressprich wrote in a Sept. 9 report.
CIT bonds rose last week on speculation the lender was in talks with Citigroup and Bank of America Corp to refinance a $3 billion loan with an $8 billion to $10 billion secured-loan facility, New York-based fixed-income research firm CreditSights Inc. said in a Sept. 27 report.
CreditSights said it couldn’t confirm the validity of the speculation and that the Federal Reserve would need to approve any transaction. Danielle Robinson, a spokeswoman for Charlotte, North Carolina-based Bank of America, declined to comment.
While the financing would get management “out from under the thumb of the steering committee,” the extra debt doesn’t reduce the risk of an exchange offer or prepackaged bankruptcy, CreditSights analyst Adam Steer said. “The company is going to need to raise equity to appease the regulators and ultimately re-establish its business,” he said in an interview.
Bank of America and Citigroup arranged CIT’s five-year, $2.1 billion bank line that needs to be repaid in April 2010, according to Bloomberg data. Barclays, the documentation agent for that loan, was the administration agent on CIT’s $3 billion rescue financing in July.
CIT, whose stock has fallen 52 per cent this year through yesterday, turned to its bondholders after failing to gain access to the Federal Deposit Insurance Corp’s program to guarantee debt sales.
Newport Beach, California-based Pacific Investment Management Co, Centerbridge Partners LP in New York, Los Angeles-based Oaktree Capital Management LLC, Boston-based hedge fund Baupost Group LLC, Capital Research & Management Co of Los Angeles, and Silver Point Capital LP in Greenwich, Connecticut, made up the group that initially provided the $3 billion in emergency funding and are part of the steering committee.
Under terms of the rescue loan, CIT had to complete a tender offer to exchange $1 billion of floating-rate notes that matured in August.
Holders of 59.8 per cent of the notes tendered the debt after CIT raised its offer 5 cents to 87.5 cents on the dollar. Bondholders that provided the rescue financing agreed to tender their holdings.
