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CIT: Bill Gross to the rescue? Print E-mail
Monday, 20 July 2009

(Reuters) - CIT Group may announce an agreement on Monday to obtain $3 billion of emergency financing from bondholders--thus avoiding bankruptcy, a person close to the matter said.

The additional funds could strengthen CIT's balance sheet and allow more time for the 101-year-old lender to small- and mid-sized businesses to restructure its debt. CIT is expected to announce the agreement on Monday, barring any unforeseen snags.

An agreement could also preserve the government's $2.33 billion investment in CIT from the Troubled Asset Relief Program. CIT became eligible for such financing when it became a bank holding company in December.

The bondholder group includes Pacific Investment Management Co, which is run by influential investor Bill Gross. The lenders are expected to provide financing with a 2 1/2-year term, two people familiar with the matter said.

The people requested anonymity because the talks are private.

A bankruptcy could have rippled through the economy by making it difficult or impossible for thousands of businesses to obtain financing to run day-to-day operations. It would have made CIT, with $75.7 billion of reported assets, the largest U.S. financial company to go bankrupt since Lehman Brothers last September.

The $3 billion financing plan will be backed by CIT's remaining unsecuritized assets, which probably exceed $10 billion, one of the people familiar with the matter said.

CIT spokesman Curt Ritter declined to comment when initial details of the rescue surfaced. Reports late in the afternoon suggested the board of directors may have already approved the agreement, though CIT has made no such announcement.

CIT has about $40 billion of long-term debt, according to independent research firm CreditSights. About $1.1 billion comes due in August, and another $2.5 billion by year end. CIT has lost close to $3.3 billion since the end of 2007.

After last-ditch rescue talks with the government failed last week, the Obama administration said it was setting high standards for granting aid to companies.

The government's decision surprised CIT chief executive Jeffrey Peek, leading him to seek sources from private investors, one of the people familiar with the matter said. The financing is part of a larger restructuring, the person said.

Late last week, industry groups including the National Retail Federation, the National Council of Chain Restaurants and the National Council of Textile Organizations urged U.S. Treasury Secretary Timothy Geithner in a letter to take action to ensure that CIT remains viable.

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