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Saturday, October 17, 2009

CIT Group Amends $29 Billion Debt Exchange to Avoid Collapse

CIT Group Inc., the 101-year-old commercial lender seeking to avoid collapse, changed the terms of its $29 billion debt exchange to increase support among its bondholders.

Maturities on new notes issued in exchange for existing bonds will be shortened, the New York-based company said yesterday in a statement distributed by Business Wire. CIT will also boost the amount of equity offered to subordinated debt holders and include notes due after 2018 that previously weren’t part of the exchange offer or reorganization plan.

CIT is seeking to reduce debt by at least $5.7 billion after being locked out of the unsecured debt markets it relies on for funding and posting nine quarters of losses totaling more than $5 billion. It turned to bondholders in July for $3 billion in rescue financing after failing to win access to a Federal Deposit Insurance Corp. program to sell U.S.-backed debt.

“Given our expectation for the exchange to fail, they would have to amend it to avoid bankruptcy,” Adam Steer, an analyst at CreditSights Inc. in New York said in a telephone interview Oct. 14.

Moody’s Investors Service said Oct. 8 that CIT may need to liquidate if too few investors agree to either the swap or a prepackaged bankruptcy. Credit rating firm Egan-Jones Ratings Co. recommended that bondholders reject the offer. CIT said Oct. 13 that Chairman and Chief Executive Officer Jeffrey Peek plans to resign at yearend.

Under the out-of-court restructuring, bondholders were to receive 70 cents to 90 cents on the dollar in the form of new debt, plus 94 percent of the equity in the company, CIT said Oct. 2 in a filing with the U.S. Securities and Exchange Commission. This excluded most unsecured notes.

Oct. 29 Deadline

With the prepackaged bankruptcy plan, bondholders would have received 70 cents on the dollar in the form of new 7 percent notes, plus 83.4 percent of equity in the reorganized company, according to an Oct. 8 report from CRT Capital Group LLC in Stamford, Connecticut. This excludes most unsecured notes maturing after 2018, which are left in place, CRT said.

The exchange offer expires at 11:59 p.m. on Oct. 29, according to the filing. CIT said yesterday that the offer to exchange notes due after 2018 will expire Nov. 13.

CIT may receive a loan of as much as $6 billion from bondholders that helped provide the emergency financing, a person familiar with the matter said this month. The funds are intended to finance a prepackaged bankruptcy if the out-of-court exchange fails to gain enough support, another person familiar with the matter said this month.

CIT, which has $42.8 billion in bonds and loans outstanding, funds about 1 million businesses from Dunkin’ Brands Inc. in Canton, Massachusetts, to Eddie Bauer Holdings Inc., the bankrupt clothing chain in Bellevue, Washington. The company says it’s the third-largest U.S. railcar-leasing firm and the world’s third-biggest aircraft financier.

Pimco, Baupost

A collapse would ripple across the “small and medium-sized businesses who rely on the finance company to operate -- to pay their vendors, ship goods to their customers and make their payroll,” CIT said in internal documents obtained by Bloomberg News in July that make the case for its importance to the U.S. economy.

Talks with regulators broke off July 15 and “there is no appreciable likelihood of additional government support being provided over the near term,” CIT said in a statement at the time. The U.S. government committed $2.33 billion in taxpayer funds in December to keep CIT afloat.

Pacific Investment Management Co. and Baupost Group LLC resigned more than a month ago from a steering committee that had to approve the restructuring plan. The remaining creditors on the committee are Centerbridge Partners LP, Oaktree Capital Management LLC, Capital Research & Management Co. and Silver Point Capital LP.

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