Struggling lender CIT hunts for help after U.S. nixes rescue
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Small-business lender CIT Group Inc., facing possible bankruptcy, said late Thursday it was talking to other lenders about securing financing. And the firm’s bondholders were mulling over the idea of a debt-for-equity swap.
CIT is a major provider of credit to U.S. small and mid-size businesses, so its failure would be another blow to the fragile economy. But the Obama administration has ruled out a rescue of the firm, clearly drawing a line in the sand on federal bailouts.
CIT’s shares plummeted $1.23, or 75%, to 41 cents Thursday as investors fled.
From Bloomberg News:
CIT is ‘continuing to evaluate alternatives,’ the New York-based company said in a statement. Earlier, bondholders held calls to discuss whether to swap some of their claims for equity to reduce indebtedness, according to a person familiar with the situation. CIT is running short of cash and may need as much as $6 billion to avoid filing for bankruptcy protection, CreditSights Inc. analysts said. ‘They are going try to raise capital with any unencumbered assets; maybe they will get a couple of billion dollars, but that’s not going to solve the problem,’ Sean Egan, president of Egan-Jones Ratings Co., said in a Bloomberg TV interview. ‘What they really need to focus on is the fact their operating income is a lot less than their cost of funds so there’s going to have to be a restructuring.’ Pimco, CIT’s largest bondholder based on regulatory filings, was to host a call, said the person, who declined to be identified because the discussions are private. CIT hasn’t proposed an exchange offer.
Newport Beach-based Pimco declined to comment.
CIT, which has about $76 billion in assets, would be the biggest bank failure by that measure since Washington Mutual was declared insolvent in September, Bloomberg said.
-- Tom Petruno