Chillin' out till it needs to be funded
Note:This is post the $3 b sign up with JPM/GS and the share was down 16% in trade. Last week, before the $3b signup, it cost $2.5 million to save (blah blah..insure..blah blah) $10b of its outstanding debt. This is where Wall Street and London made all the money from 2001 till early last year..
Advisers to large bondholders of CIT Group Inc (CIT.N: Quote, Profile, Research) are pushing to allow the company to restructure its debt with a prepackaged bankruptcy option if later debt exchanges fail to attract enough creditors, a source close to the negotiations said on Thursday.
The prepackaged option would explicitly open the door for CIT to file for bankruptcy if not enough bondholders tender their notes, said the source, who declined to be named as discussions were private.
The lender to 1 million small and middle-size companies clinched $3 billion in emergency financing from large bondholders this week to restructure its debt and avoid bankruptcy, after the collapse of rescue talks with the U.S. government.
CIT said estimated funding needs for the year ending June 30, 2010, include $7 billion of unsecured debt. The firm has about $40 billion of long-term debt, according to independent research firm CreditSights.
In a first step, CIT is offering 82.5 cents on the dollar for $1 billion floating-rate senior notes due Aug. 17, but the company said it could be forced to file for bankruptcy.
July 16: Default Swaps, Shares
Credit-default swaps on CIT jumped as much as 17 percentage points to 51 percent upfront before falling back to 47 percent upfront at 8:16 a.m., said broker Phoenix Partners Group. That’s in addition to 5 percent a year, meaning it would cost $4.7 million and $500,000 a year to protect $10 million of CIT debt for five years.
The lender gained 1.9 percent to $1.64 yesterday before trading was halted by the New York Stock Exchange. When trading resumed today, the stock plunged as much as 99 percent, and was down $1.27, or 78 percent, to 37 cents as of 10:34 a.m.
The stock, which fell 64 percent this year, sold for more than $60 in February 2007. Common shareholders typically get little or nothing in a bankruptcy unless creditors are paid first. CIT employed about 4,800 people at the end of March.
“Even during periods of financial stress, we believe that there is a very high threshold for exceptional government assistance to individual companies,” the Treasury said in a statement yesterday.
Treasury Secretary Timothy Geithner declined to comment directly on CIT today, saying only that his team has “been working very closely with the FDIC and the Fed and monitoring” the situation.