Sunday night, the big small-business lender CIT Group managed to snatch a $3bn deal with its creditors that buys it time, allowing it to escape bankruptcy… for now. There will be at least six creditors providing the capital to the lender, including Baupost, a Boston-based hedge fund, CapRe, hedge fund and private equity firm Centerbridge Partners, and Pimco.
The deal will be providing CIT nothing but a short-term financing and a period of time that may or may not be enough for it to resolve some of its liquidity problems. Without significant changes in its capital structure, the firm might just find itself in the brink of filing for Chapter 11 yet again. Getting additional capital from bondholders not only will allow it to improve itself, but also reduce losses for the creditors and prevent the decimation of the American public’s investment via the TARP.
Here’s an excerpt from a WSJ report:
Under the proposal, CIT would likely pay interest rates 10 percentage points above the London interbank offered rate, said these people. (As of Friday, three-month Libor stood around 0.5%.) CIT has also agreed to pledge some of its highest-quality loans as collateral on the $3 billion package.
The new loan could act like a “bridge” to a series of debt-exchange offers that CIT would launch in order to get bondholders to swap some of their bonds for equity in the company or for new debt that matures later.
The news helped the stock surge more than 50% in the Frankfurt market, while also shaping the Dow futures to what may be yet another positive trading session on this new week.