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Daily News – October 6, 2009 – CIT Front And Centre

October 6, 2009

The main news item of interest over the last very few days has been the potential rescue of CIT – the financing firm and bank that supports thousands of companies in the clothing industry.  On October 2, Bloomberg reported on rumor that the same group of bondholders who offered CIT $3 billion in financing months ago will return to the table with another $3 – $6 billion in rescue funds as early as this week. Reuters added to this report, saying the new facility may provide up to $10 billion in total bailout money for the company, and that the funds would be available either through the voluntary bankruptcy or instead of it.

What is going to decide if CIT should file for bankruptcy or not is another note exchange that it is offering bondholders that have notes maturing in the next number of months.  Basically, note holders need to decide if they are willing to take new notes that will be worth less than their current ones, and shares of the company, rather than letting their notes mature and taking their investment back. Forbes explains the dilemma in more detail.

The New York Times has also reported today that investment bank Goldman Sachs could make up to $1 billion if CIT were to opt for voluntary bankruptcy. According to the paper:

CIT must pay Goldman the present value of all future interest payments if the financing is terminated early

Goldman would be able to capitalize on 20 years of interest payments for facilitating financing for 14 months.

This leaves CIT clients in suspense and note holders with a tough decision on their hands.  We will keep you posted as developments and stories continue to evolve.


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