CIT gets stay of execution

THE board of stricken US lender CIT yesterday agreed a $3bn (&pound;1.82bn) rescue loan from key bondholders, saving it from the jaws of bankruptcy.<br /><br />With the US government making it clear that CIT is not systemically important enough to warrant a bailout, the financing package is aimed at buying the bank time to restructure its debt.<br /><br />Sources close to the bank said the financing would be offered at very high interest rates and would not make much of a dent in a debt mountain that research firm CreditSights estimates at around $40bn.<br /><br />But CIT, which lends to thousands of small business across the US, saw its shares skyrocket more than 80 per cent to $1.26 in early trading on news of the rescue, after losing nearly 100 per cent of their value amid fears of a collapse last week.<br /><br />The bank initially sought a $2bn rescue by Wall Street giant JPMorgan Chase, but the agreement fell through after negotiations collapsed last Thursday night.<br /><br />Investment bank Houlihan Lokey led the talks with bondholders, of which the largest is Pacific Investment Management.<br /><br />CIT ran into difficulties two years ago after expanding into subprime mortgages and student loans.<br /><br />The bank was granted permission to become a bank holding company in December last year, giving it access to $2.33bn of the US government&rsquo;s Troubled Asset Relief Programme (Tarp).<br /><br />But the capital injection alone did not solve the financing problem at CIT, which has a debt of about $1.1bn due in August and another $2.5bn by the end of the year.