CIT mulls equity swap in bid to cut 30bn debt pile
By James Quinn US Business Editor
Published: 9:23PM BST 30 Sep 2009
Shares in CIT fell by 35.45pc – down 78 cents to $1.42 – on reports that the company’s fate “was hanging in the balance” as it considered launching a debt-for-equity swap intended to wipe out as much as 40pc of its $30bn (£18.7m) debt pile. That plan would be predicated on offering bondholders new debt secured against the company’s assets, as well as nearly all of the equity in a restructured CIT, virtually wiping out existing shareholders.
At the same time, reports also suggested that CIT, one of America’s largest lenders to small and medium-sized businesses, was in talks with Barclays Capital and Citigroup regarding some form of financing designed to keep the business afloat. If the company’s board does not receive enough support for its plans, it may seek to restructure itself in bankruptcy, having already told investors that Chapter 11 protection is one option open to it.
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In August, the board said it had until October 1 to come up with a plan acceptable to a majority of its bondholder steering committee, which forwarded a $3bn emergency loan to the company in July.
CIT is the latest victim of the tightening in the credit markets, namely the unsecured debt markets on which it traditionally relied for funding.
However, CIT’s situation has been exacerbated by it been given a “junk” credit rating by ratings agencies as a result of sustained losses and its deteriorating finances, making it near-impossible for the company to raise money in the open markets.
Last autumn, CIT received $2.3bn of funding from the US Treasury’s Troubled Assets Relief Programme (TARP), money which is unlikely to be repaid if it is forced into bankruptcy.