CIT Group Gets A Deal

From Reuters, the WSJ is reporting that a $3 billion deal with CIT Group's bondholders has been reached to spare the company bankruptcy proceedings.

CIT Group Inc has cut a deal with its key bondholders for $3 billion in financing that will allow the 101-year-old lender to avoid bankruptcy, according to a headline on the Wall Street Journal's web site.

CIT, which suffered a liquidity crunch and found itself straining under its multi-billion dollar debt load, aims to restructure outside of court, the Journal said.

No other details were immediately available.

The NY Times has more:

Under the terms of the proposal, CIT would receive $3 billion from some of its main bondholders. The money is meant to give the company several weeks to set up an exchange of bondholders’ debt for equity, alleviating some of the pressure from billions of dollars in obligations.

CIT’s board is scheduled to discuss the proposal at a meeting Sunday evening.

The plan was formed after days of round-the-clock negotiations between CIT, its financial and legal advisers and a group of large bondholders over recent days. Jeffrey Peek, CIT’s chief executive and the architect of the 101-year-old company’s aggressive yet ill-timed push into subprime mortgages and student loans, was actively involved in the financing talks, according to people briefed on the matter.

It is unclear whether the long-sought-after lifeline will be enough to give CIT room to make crucial changes to its business at a time when it is unable to get financing from the capital markets.

More on this as it comes in.

[UPDATE 9:26 PM] Another Reuters update with additional information:

The bondholder group, which includes Pacific Investment Management Company (Pimco) and some other top CIT holders, is expected to provide the financing with a 2 1/2-year term, the sources said.

CIT's board plans to meet later on Sunday to discuss the terms of the deal, and the lender is expected to announce the deal on Monday if the board approves it, according to one source, who declined to be identified because talks are private.

The deal is part of a larger restructuring plan, the source said.

The $3 billion rescue financing plan will be backed by remaining unsecuritized assets which likely exceed $10 billion, another source familiar with the matter said.

"The $3 billion is new money but securitized by all the remaining unsecuritized assets which probably exceed $10 billion," that source said.

A $3 billion plan with $10 billion backing it up at almost assuredly usurious interest rates. Almost makes you wonder who has that kind of cash to lend these days to a company with a junk rating.

Ahh, the delicious aroma of moral hazard in action. CIT Group may not qualify in the clout department for a bailout, but I'm betting those bondholders (and whoever else put up that $10 billion in assets backing the loan to CIT) led by Pimco do. They can't lose. CIT either pays them with interest, or the taxpayers will should the company go south again. It's just amazing to see how the financial industry has turned around enough to be able to front that kind of juice to keep CIT Group alive.

Almost unbelievable, one might say. CalcRisk has more.

This is new debt at a reported 10% plus LIBOR rate. This is not debt for equity. This is essentially a bridge loan, with a reported 2 1/2 year term.

LIBOR plus ten percent? And they say chilvary is dead.