Troubled CIT calls for $2bn infusion - Bondholders asked for funding bridge

Troubled CIT calls for $2bn infusion - Bondholders asked for funding bridge
By Henny Sender and Saskia Scholtes in New York
Copyright The Financial Times Limited 2009
Published: July 17 2009 20:15 | Last updated: July 18 2009 00:55
http://www.ft.com/cms/s/0/856f2f30-7303-11de-ad98-00144feabdc0.html


CIT Group was in crisis talks on Friday night with a small group of its bondholders to cobble together a rescue financing that would stave off a bankruptcy filing.

In a day of negotiations that saw JPMorgan and Goldman Sachs drop out as potential providers of rescue funds, CIT approached bondholders for an infusion of between $2bn and $3bn.

If it is successful, it would then try to engineer a dent for equity swap with a wider group of creditors.

With a funding bridge in place, CIT would then go back to the government and ask for permission to transfer more of its assets to its bank subsidiary, people familiar with the matter said.

At the same time, several banks involved in the messy situation say they stand ready to provide a debtor-in-possession financing in case of a bankruptcy protection filing.

And even as bondholders are being approached to contribute to a rescue package outside any filing, they say they are also being asked about their appetite to be part of any such DIP.

“Dizzying is the only way to describe the process,” said one adviser.

Among banks that would likely participate in any DIP financing are JPMorgan, Goldman Sachs, Morgan Stanley and Barclays, people familiar with the matter say. Such DIP financings are both lucrative and extremely safe since providers have first claim on the company’s assets. While CIT would accumulate cash in the event of a filing, advisers say that any additional DIP funds could go to satisfy customers that CIT could meet their needs.

Advisers and potential investors seemed slightly more optimistic about CIT’s prospects as it moved to deal with its problems after regulators refused to provide additional support earlier this week.

CIT has more than $30bn of unencumbered assets which could provide security for a new bridge financing. In most cases, companies are forced to file for Chapter 11 bankruptcy protection because they lack assets that can be pledged against new borrowings. The company could also raise money by selling off some of its more attractive units, such as its factoring and vendor financing operations, despite the fact that previously CIT has balked at the low prices any sales would generate in today’s depressed environment.

As late as Wednesday, advisers were confident that CIT would receive government support. Earlier this month, CIT was seeking cash from the Fed in exchange for assets, after being told that the FDIC would not support its request for loan guarantees, advisers to CIT say. But by this week, CIT was just seeking permission to move more assets into its bank subsidiary, in what is known as a 23-a exemption.

But regulators only sign off on such transfers “if there is no additional risk to the bank”, says Gil Schwartz, a Washington-based lawyer specialising in regulatory issues.