Billionaire Investor Carl Icahn Snaps Up CIT Debt; CIT Pays Goldman Sachs $285 Million to Trim Its Rescue Loan

Reuters
October 30, 2009

* CIT pays $285 million in fees to Goldman
* Counting votes on restructuring plan, debt exchange
* Shares fall almost 12 percent to 84 cents in pre-market

Goldman Sachs Group plans to trim the rescue loan it arranged for CIT Group Inc by $875 million to $2.125 billion, CIT said on Friday.

CIT, which has been struggling to finance itself amid the credit crunch and recession, said it is effectively removing the part of the loan it hadn't taken, according to a filing with regulators.

The commercial lender paid $285 million as a fee to Goldman for reducing the loan and it has posted an initial $250 million in collateral, according to the filing. In return, Goldman has agreed it will not terminate the loan should CIT file for bankruptcy.

Goldman had been seeking to amend the loan since earlier this month, according to reports. The bank had been due a payment of $1 billion if CIT filed for bankruptcy, a source told Reuters.

CIT is likely to file for bankruptcy in the coming days, analysts have said.

If struggling U.S. commercial lender CIT Group Inc were to collapse it would be a "drastic mistake" as the small businesses that rely on it would have few alternate sources of funding... "I have a great fear of the collapse of CIT and that people don't understand the ramifications of what that can be. I think it would be a very, very drastic mistake in this country to allow CIT to go under." - Lynn Tilton, chief executive of distressed investment firm Patriarch Partners, CIT Collapse Would Be a Mess, Turnaround Experts Say, October 1, 2009

The lender has offered investors two options: an exchange of bonds for new securities and equity, avoiding a bankruptcy filing; approval of a reorganization plan before the company files for bankruptcy.

Separately, in a statement on Friday, CIT said an independent balloting company is counting more than 150,000 ballots from investors on the exchange and restructuring plan, which expired on Thursday.

The company did not say how long this process might take.

CIT shares fell almost 12 percent to 84 cents in pre-market trading.

CIT Presses Bondholders to Agree to Restructuring

Reuters
October 23, 2009

CIT Group Inc warned bond holders that if they failed to exchange their debt or approve a prepackaged bankruptcy, the commercial finance company -- and its debt investors' returns -- could suffer mightily.

The company said that, without a debt exchange or an orderly bankruptcy, the company would have to liquidate, an expensive process that could leave unsecured bondholders with somewhere between 6 cents and 37 cents on the dollar. These bonds were trading just above 60 cents on the dollar earlier on Friday.

"Let's be clear. A free-fall bankruptcy will ... result in a lower recovery for today's unsecured bondholder," CIT Chairman and Chief Executive Jeffrey Peek said in a pre- recorded webcast presentation.

CIT's restructuring plans were almost immediately slammed by billionaire investor Carl Icahn, who snapped up CIT debt in the past few months to become what he says is the company's largest bondholder.

New York-based CIT is trying to restructure its debt through getting debt holders to exchange their debt, or to agree to a pre-packaged bankruptcy. It is also looking to boost a $3 billion secured credit facility by another $4.5 billion.

Once the company restructures its liabilities, it can try to move some of its businesses into its regulated bank subsidiary and fund them with deposits instead of bonds.

Icahn said a better plan is to try to move businesses into the bank within nine months. If that does not happen, the company should wind itself down and pay out proceeds to debt holders. Icahn said that, if the company pays off its debt with money from maturing assets, his bonds could be worth 80 cents to 85 cents on the dollar.

"CIT would have you believe that a bankruptcy would be calamitous. We do not believe this to be the case," said Icahn, who made much of his fortune over the years buying controlling stakes in distressed companies.

Icahn has been increasingly active in companies in bankruptcy court this year. This summer, he was approved by a court to provide part of the bankruptcy financing for auto parts maker Lear Corp, a company he had once had a large equity position in and tried to acquire. He also received approval from a bankruptcy court to buy Tropicana Casino and Resort in Atlantic City.

Time is running out for CIT. The company has until Oct. 29 to restructure its debt or get approval for a prepackaged bankruptcy. In the beginning of November, about $1 billion of its debt matures...

CIT makes loans mostly to small and medium sized businesses and also has a large factoring business that services the retail sector.

CIT Debt Swap Struggles, Bankruptcy Looms

Reuters
October 13, 2009

CIT Group Inc (CIT.N) is seeing little interest from bondholders in a debt exchange offer aimed at repairing its fragile balance sheet, making bankruptcy increasingly likely, sources familiar with the matter said.

The lender to small and medium-sized businesses said earlier this month it was looking for investors to approve a large debt exchange that would reduce its borrowings, or to approve a prepackaged bankruptcy.

CIT is now more likely to try a prepackaged bankruptcy, two people familiar with the matter said. They declined to be identified because the exchange offer is ongoing and information about its progress is private.

But separately, investors in CIT securities said it is possible the company will not find enough debtholder approval for a prepackaged bankruptcy, which requires sufficient support before the company files for protection from creditors. Instead, CIT might have to aim for a prenegotiated bankruptcy, which typically has less support before the actual filing.

CIT spokesman Curt Ritter declined to comment.

CIT has limited time to work out its debt difficulties. It has about $3 billion of debt to repay in the fourth quarter, including both secured and unsecured obligations, according to a CIT quarterly filing with regulators.

CIT has lost access to unsecured debt markets, but has billions to refinance in coming years. In three of the next four years, it will have more debt to repay than cash to pay it back. CIT has roughly 1 million customers and more than $70 billion of assets, but many of its borrowers are struggling amid the worst recession since the Great Depression.

The company's debt exchange aims to reduce CIT's borrowings by at least $5.7 billion, with specific targets for lowering the company's liabilities through 2012. The exchange offer expires on October 29.

AT LEAST TWO WANT MORE

At least two groups of investors are pushing for better terms in a bankruptcy than those suggested by the company earlier this month, one of the sources and investors said.

A subordinated debt holder said last week he was hoping to press for either more equity, or for a promise from the company to pay extra money to current subordinated debt holders if the company's assets perform well enough.

Separately, investors holding debt that funded CIT business in Canada are pushing for greater consideration in any bankruptcy plan, too. These investors are entitled to recover money from Canadian assets and the parent company in the United States and could therefore get close to 100 cents on the dollar in any bankruptcy.

One investor that would take a hit in a CIT bankruptcy is the U.S. government. The United States' Troubled Asset Relief Program invested $2.3 billion in CIT in December and much or all of that could be lost if the company files for bankruptcy, analysts said.

But many debt investors are likely to end up with much more than zero if CIT files for bankruptcy. One group of bondholders lent $3 billion to the company in July. That loan is collateralized by an estimated $30 billion of assets, which would ensure that the July loan could likely be paid back in full.