views

CIT warns of bankruptcy risk

City A.M. Reporter
CIT GROUP yesterday warned it could still file for bankruptcy if a cash tender offer for its outstanding notes fails, one day after securing $3bn (&pound;1.8bn) in emergency financing from its bondholders.<br /><br />The 101-year-old company, which lends to nearly a million small and mid-sized businesses, also forecast a second-quarter loss of more than $1.5bn.<br /><br />In a regulatory filing, CIT said the cash tender offer for its outstanding floating-rate senior notes due on 17 August was the first step in its recapitalisation plan. The lender said it could file for bankruptcy if the offer does not succeed. The offer, disclosed on Monday, is $825 for each $1,000 principal amount of notes tendered on or before 31 July.<br /><br />&ldquo;The disruptions in the credit markets that began in 2007...have materially worsened in the first and second quarters of 2009,&rdquo; the company said in the filing.<br /><br />Problems at CIT emerged in the wake of chief executive Jeffrey Peek&rsquo;s decision earlier in the decade to expand into subprime mortgages and student loans.<br /><br />The US government declined help to CIT last week, leaving private investors as the last source of funding for the company.<br /><br />Several analysts and bankers have said the $3bn rescue financing might only delay bankruptcy, in light of skittishness among CIT customers and the New York-based company&rsquo;s inability to readily tap capital markets.<br /><br />CIT&rsquo;s floating-rate notes due in August were trading at around 88 cents on the dollar yesterday, compared with the company&rsquo;s offer of 82.5 cents -- a sign that bondholders were likely to hold out for a higher price, traders said.