CIT Snares $3 Billion in Emergency MoneyCIT Group Inc. got $3 billion of emergency financing from bondholders on Monday, staving off bankruptcy.
The rescue from several big bondholders was approved by the CIT board and allows more time for the 101-year-old lender to restructure its debt. CIT lends to small and mid-sized businesses and more than 500,000 consumers.
The company was at the edge of collapse because of eight straight quarters of bad earnings because of defaulted home mortgages, student loans and commercial loan defaults.
The bondholders stepped in to give the lender money after it was turned down by the federal government for a second round of bailout money. The lender has $1 billion in notes due to mature on August 17 and is asking investors to swap those securities for 82.5 cents on a dollar. CIT calls the move a first step in a broader recapitalization plans that will include "a comprehensive series of exchange offers designed to further enhance CIT's liquidity and capital."
CIT, once the biggest independent commercial finance firm in the U.S., sold for more than $61 a share in February 2007 on the New York Stock Exchange. The shares have since plunged to under $2.
CIT's cash shortage has forced it to cut back its lending. In the last quarter, CIT's loans to small businesses nosedived 88 percent to $65.7 million and the company fell to 15th in the category from first in 2008.
According to internal documents at CIT, bankruptcy would put 760 manufacturing clients at risk of closure and set off a "crisis" for as many as 300,000 retailers. Lawmakers also expressed concern that if CIT goes into bankruptcy, it may worsen a credit crunch for small businesses. The U.S. government holds a $2.33 billion stake in the company after loaning it to the troubled lender in December. CIT converted to a bank holding company to be eligible to sell bonds backed by the FDIC.