Awaiting CIT's Fate
CIT said on Monday it remains in active discussions with principal regulators about “a series of measures to improve the company's near-term liquidity position.”
July 13, 2009
Over the weekend, reports began to surface that CIT Group, which is burdened with upcoming debt maturities and eroding liquidity, had been denied access to the Temporary Liquidity Guarantee Program, a government-backed program that could help inject fresh capital into the troubled lender and underwriter. However, Standard & Poor’s today issued a statement saying the firm could still be approved and that it still has options.
“We think the firm could see its approval to issue FDIC-backed debt granted, may be able to transfer certain assets to its bank subsidiary with government approval, or may seek to divest assets, but execution risks remain,” S&P said.
CIT said on Monday it remains in active discussions with principal regulators about “a series of measures to improve the company's near-term liquidity position.”
However, in case it finds itself without other options, CIT has hired Skadden, Arps, Slate, Meagher & Flom, a law firm specializing in bankruptcy and restructuring work, to help it prepare for a possible bankruptcy filing.
The troubles for the firm intensified last week as market participants looked at where CIT’s bonds were trading, leading many to believe the firm was on the verge of collapse. CIT has more than $10 billion in debt coming due next year and has reported losses totaling more than $3 billion in the past eight quarters.
It couldn’t be determined why the firm was denied access to the government program, despite the fact that it became a bank holding company in December. Some market participants, however, have said the too-big-to-fail policy doesn’t apply to CIT.
CIT and the FDIC declined to comment.
The price of the firm’s $2 billion in 7.625% senior unsecured notes due 2012 has fallen 10 cents in the past week to 62. At the same time the price of its $656 million in 5.125% notes due 2014 has fallen 5.5 cents to 53. The bonds fell 9.5% in June, making the firm the third-worst performer among the 50 biggest high yield issuers, according to Bloomberg. The average junk bond, meanwhile, rose 3.2% last month and is up a record 30% since the start of 2009. CIT shares, meanwhile, were changing hands at $1.20 on Monday, down from a 52-week high of $13. The stock's 52-week low is $1.08.
A failure the size of CIT—a firm with more than $75 billion in assets—would be the largest bank collapse since Washington Mutual in September 2008. The firm has also said that its demise would put more than 700 manufacturing businesses and as many as 300,000 retailers at risk. CIT has given loans to almost one million businesses since it was founded in 1908. The firm has recently provided loans to Eddie Bauer, Five Guys and Dunkin’ Brands, among others.
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