CIT bankruptcy inevitable without more emergency financing, analysts say

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CIT bankruptcy inevitable without more emergency financing, analysts say

By Ronald Fink

CIT Group will have to do more than it has proposed in its latest debt-for-equity exchange offer to avoid Chapter 11, according to an analysis published on Thursday.

The Wall Street Journal on Thursday reported that the troubled lender to small and medium-sized businesses with $71 billion in assets was seeking to extinguish anywhere from 30 percent to 40 percent of its $30.5 billion in debt by convincing bondholders to exchange their holdings for equity. If the offer fails to attract that much interest, the company reportedly will require those who agree to the exchange to take the equity as part of a pre-packaged bankruptcy filing.

But CIT, which received $2.3 billion in loans from taxpayers last December under the Treasury's Troubled Asset Relief Program, may have to file for Chapter 11 protection even if it gets bondholders to tender as much as 41 percent of its debt through the exchange, according to analysts at research firm CreditSights.

While the analysts noted that such a reduction in debt would get the company's balance sheet into viable shape, they contend that because so much of CIT's debt is due within a year the company cannot steer clear of bankruptcy without additional support from unsecured lenders.

CIT won $3 billion in such financing from a group of large bondholders, including Pimco, Oaktree Capital and Silver Point Capital, in late July, helping avoid a bankruptcy filing at that time. The financing, in turn, gave CIT time to prepare a debt-exchange offer.

But the company has already tried and failed to get enough bondholders to take part in such an exchange and return to solvency. And a fresh infusion of emergency financing may be hard to come by, according to CreditSights. With some $5 billion, or roughly a sixth, of CIT's debt due within the next 12 months, the analysts believe the company needs far in excess of the $4 billion in fresh capital that it has told the Federal Reserve it requires.

"We believe that unsecured lenders may demand far in excess of this amount," the analysts wrote, adding that "CIT's position remains critical, as the company's liquidity remains stressed and its capital position remains below the Fed's threshold."

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