CIT gets $3b bailout from its bondholders

Deal is to ensure that smaller firms can still get credit

The board of CIT Group Inc. approved a deal with major bondholders to keep the company out of bankruptcy. The board of CIT Group Inc. approved a deal with major bondholders to keep the company out of bankruptcy. (Seth Wenig/ Associated Press)
By Stevenson Jacobs and Daniel Wagner
Associated Press / July 21, 2009

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NEW YORK - Commercial lender CIT Group Inc. confirmed late yesterday that it has secured a $3 billion bailout from its bondholders, saving the company from filing for bankruptcy protection.

It was a new twist in the financial crisis: A major bank on the verge of a last-minute rescue; only this time the bailout is not coming from the government. The deal marks the first time in the current banking crisis that private investors are stepping in to save a big financial firm without federal help or oversight.

CIT said the rescue includes a $3 billion secured term loan with a 2 1/2-year maturity, which will ensure that its small and midsized business customers continue to have access to credit. Term loan proceeds of $2 billion are committed and available immediately, with an additional $1 billion expected to be committed and available within 10 days.

The lender is also moving to immediately restructure its debt to provide additional liquidity and further strengthen its capital position.

“With today’s announcement, our board of directors, management team, advisers, and a steering committee of bondholders who are lenders under the term loan financing, are now actively focused on a restructuring plan that will better position our company for the long term,’’ Jeffrey M. Peek, CIT chairman and chief executive, said in a statement.

CIT has launched a cash tender offer for its $1 billion in outstanding floating-rate senior notes due Aug. 17, offering $825 for each $1,000 in notes tendered on or before July 31. Lenders involved in the bailout deal have agreed to tender all their Aug. 17 notes, CIT said.

The company and the steering committee of bondholders will now work on drawing up a number of debt-swap offers designed to alleviate CIT’s debt burden and further shore up the company’s cash position.

The deal suggests that the appetite for risk is increasing in the private sector, analysts said. It could also provide a framework for other financial rescues if Washington turns off the bailout spigot.

CIT lends to nearly a million small and midsize companies.