UPDATE: CIT Not Currently Discussing A Merger -Sources
September 29 2009 - 6:16PM
Dow Jones News
Embattled commercial lender CIT Group Inc. (CIT) continues to
search for a line of credit to stave off possible bankruptcy, but
isn't actively considering a merger at the moment, people familiar
with the company and its creditors said Tuesday.
CIT has to submit a restructuring plan that is acceptable to a
majority of its bondholder steering committee by Oct. 1.
The company warned in July it may be forced to file for
bankruptcy protection, after it failed to get additional aid from
government officials for any form of rescue. The company secured a
$3 billion rescue loan from a group of its six largest bondholders,
including Pacific Investment Management Co., Oaktree Capital,
Silver Point Capital, and Centerbridge Partners, at the end of
July.
Shares gained 31.7% to $2.20 on the New York Stock Exchange on
Tuesday after a report in the New York Post of a possible merger
proposal of CIT and privately held mortgage lender IndyMac Federal
Bank.
Hedge-fund manager John Paulson, who owns CIT bonds and was part
of the private-equity and hedge-fund consortium that bought IndyMac
earlier this year, was said to have informally proposed a merger
between the two, according to the Post report.
A person close to Paulson told Dow Jones Newswires later Tuesday
that the report of the Paulson proposal was "way off base." A New
York Post editor didn't return a call seeking comment.
IndyMac is overseen by the Federal Deposit Insurance Corp., a
situation that would make such a merger difficult, the person said.
The person wouldn't comment further on Paulson's feelings about CIT
or IndyMac.
Standard & Poor's analyst Matthew Albrecht said a Paulson
plan "would be one of many options discussed among CIT's creditors
to help the company. We view positively any ideas that might
provide a catalyst for CIT's creditors to restructure the company's
considerable debt."
CIT's near-term bonds continued a recent rally, with the 5.6%
bonds due April 2011 up three points at 72 cents Tuesday, according
to online trading platform MarketAxess. That is 11.4 points higher
for the month. The near-term bonds have made significant gains this
month ahead of CIT's restructuring plan deadline, and have been
buoyed this week on speculation that the company is in talks with
Citigroup Inc. (C) and Bank Of America Corp. (BAC) to refinance its
$3 billion rescue loan with $8 billion to $10 billion of new
secured debt.
In a note to clients Monday, CreditSights analysts said that
while they cannot confirm the validity of the speculation, repaying
the $3 billion loan with a new financing would get "management out
from under the thumb of the steering committee." It also helps to
preserve the flexibility of CIT by keeping it alive longer, the
analysts said.
Two people close to discussions about CIT's restructuring plan
said any loan would most likely total close to $6 billion. They
said the firm would either look to increase the size of the
existing $3 billion loan or refinance it into a larger facility.
This extra debt would ensure that the company has enough cash to
see it through a recapitalization of its balance sheet, one of the
people said. Any secured debt is likely to come from the steering
committee of bondholders, as well as banks, this person said, but
added that banks haven't not yet been chosen.
Richard Lee, managing director of fixed-income trading at Wall
Street Access, a broker-dealer in New York, still isn't ruling out
bankruptcy.
"CIT's near-term liquidity would improve" with this new debt,
"but it would layer $5 billion to $7 billion of secured debt ahead
of the unsecured public bonds and would significantly lower
recovery rates if the end game is bankruptcy," he said.
Any restructuring is expected to include debt-for-equity swaps
as well as offers to extend debt maturities. The exchange offers
are likely to carry the option of a pre-packaged bankruptcy if not
enough bondholders participate in the exchanges.
CIT, which posted a $1.62 billion loss in the second quarter,
has said previously that a restructuring may also include selling
portfolios of assets or business lines.
A spokesman for CIT declined to comment. Jeanette Volpi, a
spokeswoman for Citigroup, declined to comment. Bank of America
Merrill Lynch didn't respond to requests for comment.
-By Joseph Checkler and Kate Haywood, Dow Jones Newswires;
212-416-2152; joseph.checkler@dowjones.com
(Joe Bel Bruno and Aparajita Saha-Bubna contributed to this
report.)