CIT Group Gets $4.5 Bil. More to Restructure Debt
CIT Group Inc., one of the nation’s largest lenders to small and mid-sized businesses, said Wednesday it received $4.5 billion in credit from its own lenders and bondholders as it tries to avoid collapse.
The company has been trying for months to restructure its operations and reduce its debt burden to avoid bankruptcy. The loan also comes as CIT Group has been facing pressure from billionaire investor and bondholder Carl Icahn who was been trying to get investors to reject the company’s restructuring plan.
The new $4.5 billion loan is being financed by a group of lenders, including some bondholders, that provided CIT with a $3 billion lifeline over the summer.
Jeffrey Peek, CIT Group’s chairman and CEO, said in a statement the new loan will help the company serve customers as it progresses through an ongoing restructuring plan.
CIT Group, based in New York, is currently asking bondholders to swap their debt for stock and new debt that matures later. It is trying to reduce its near-term debt maturities by $5.7 billion.
Even if it gains approval to restructure its debt from bondholders, CIT has warned it still might have to file for bankruptcy protection. A failure to gain acceptance on the restructuring offer, which has been sweetened twice, would almost definitely result in bankruptcy.
CIT has also asked bondholders to approve a prepackaged bankruptcy plan at the same time they vote on the debt restructuring in case the company does collapse. Most bondholders must decide by Thursday whether to approve the restructuring and bankruptcy plans.
In a separate statement Wednesday, CIT said it would accelerate changes to its board of directors under the prepackaged bankruptcy scenario. The company said it would reorganize its board immediately if the bankruptcy plan was put into place, instead of waiting until the 2010 annual meeting.
The board would consist of 12 independent directors and the future CEO, with a majority of the directors chosen by bondholders.
CIT said it continues to believe that it has “broad support” for its restructuring plan from both large and small bondholders.
In recent weeks, Icahn has waged a campaign to try and get debtholders to vote against CIT Group’s restructuring plan, which he says unfairly hurts small bondholders.
On Tuesday, Icahn offered to buy certain classes of debt from CIT bondholders for 60 cents on the dollar if they reject the company’s restructuring plan. Icahn also offered CIT a $4.5 billion loan late Tuesday in attempt to stop it from reaching its latest deal with lenders.
A spokesman for Icahn was not immediately available to comment Wednesday afternoon on CIT’s new loan.
CIT said in a statement that Icahn gave the lender less than one hour to accept his offer and the company received no evidence or agreement that showed Icahn could fund the $4.5 billion loan.
If CIT collapses, it could further hurt an economy — and especially a retail industry — trying to recover from the worst recession since the Great Depression. CIT Group is a short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation.
The lender’s problems have been growing as its borrowing costs have outpaced its income since the credit crisis erupted last year. When the credit markets shut down last year, CIT lost its primary source of funds used to operate the business and it has yet to recover. CIT received $2.3 billion in government bailout money last fall at the peak of the crisis.
Shares of CIT jumped 10 cents, or 10.4 percent, to close Wednesday at $1.06.
10/28/2009 6:04 PM STEPHEN BERNARD, AP Business Writer NEW YORK