CIT gets stay of execution
THE board of stricken US lender CIT yesterday agreed a $3bn (£1.82bn) rescue loan from key bondholders, saving it from the jaws of bankruptcy.
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.
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.
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.
The bank initially sought a $2bn rescue by Wall Street giant JPMorgan Chase, but the agreement fell through after negotiations collapsed last Thursday night.
Investment bank Houlihan Lokey led the talks with bondholders, of which the largest is Pacific Investment Management.
CIT ran into difficulties two years ago after expanding into subprime mortgages and student loans.
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’s Troubled Asset Relief Programme (Tarp).
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.