July 20, 2009

CIT Group said in $3B bondholders deal

CIT Group Inc., a leading U.S. lender to small and midsize businesses, secured $3 billion in last-minute rescue financing, people briefed on the matter said.

The deal, approved Sunday night, is intended to give CIT several weeks to restructure its business model and shrink its voluminous debt load after the company failed to win crucial concessions from Washington regulators, The Wall Street Journal, New York Times and Financial Times reported.

An announcement detailing the deal arrangement was expected Monday.

The deal charges CIT a high initial interest rate of 10.5 percent and doesn't permanently fix the company's long-term financing needs, people involved in the transaction told the newspapers. But it buys several weeks for the lender to restructure itself and minimizes bondholder losses.

Bondholders calculated they would lose more if CIT filed for bankruptcy and sold assets at fire-sale prices than if they offered the rescue.

CIT has also agreed to pledge some of its highest-quality loans as collateral on the $3 billion package, the Journal said.

CIT shares rose $0.63, or 90 percent, to $1.33 a share around midday Monday on news of the possible rescue deal.

If CIT were to fail, the $75 billion company would become the largest casualty in the finance sector since Lehman Brothers Holdings Inc. collapsed last fall.