CIT struggles from bankruptcy
NEW YORK - CIT Group Inc is continuing talks with potential lenders to secure billions in much-needed financing and stay out of bankruptcy court after the US government declined to extend emergency aid to the troubled commercial lender.
CIT shares lost three-quarters of their value on Thursday as bondholders made a last-ditch effort to prevent a Chapter 11 bankruptcy filing.
CIT is trying to line up US$2 billion (S$2.91 billion) to US$4 billion in rescue financing from its debtholders within the next 24 hours, two sources familiar with the talks told The Associated Press.
But there is no guarantee bondholders will be able to save the ailing company, which teeters on the brink after rescue talks with regulators broke off late on Wednesday after days of round-the-clock negotiations. The New York-based bank, one of the country's largest lenders to small and mid-sized businesses, faces US$7.4 billion in debt that's due in the first quarter of next year.
CIT, which got US$2.3 billion of bailout money in December, had warned that depriving it of more federal aid could imperil about a million corporate borrowers - from Dunkin' Donuts franchisees to retailer Dillards Inc. But the Obama administration turned down the company's request, showing it's drawing a line in the sand on federal rescues for troubled financial firms.
CIT bondholders discussed their options on Thursday in a conference call that involved restructuring firm Houlihan Lokey, according to the sources.
If CIT can improve its liquidity, either through debt restructuring or by getting an injection of private equity, that could give it better leverage to reopen talks with regulators. The most likely avenue for survival would be getting permission to transfer assets to the company's bank. The bank could then borrow against that money at a discount if the Fed allows it.
Such transfers require approval from the Fed and the FDIC because regulators don't want banks - whose deposits are insured - to risk insolvency by bailing out their parent companies.
Regulators resisted CIT's earlier plea for permission to make a transfer because they didn't think the company was strong enough, and worried it would default on any loans from the Fed. With a stronger balance sheet, CIT may make a better case.
But investors were acting as if bankruptcy were unavoidable, sending CIT shares skidding US$1.23, or 75 per cent, to close at 41 cents after sinking as low as 31 cents earlier in the session. -- AP
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