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CIT Group (CIT)
CIT Group: Still on the Brink of Bankruptcy
For the last few months, investors have been holding on to their seats waiting to see how things will unfold at CIT Group Inc. Rumors regarding stability have been circulating about the trouble commercial lender since the beginning of the year. It seems like every month the company is trying something new to get more money back on the books, but their methods are not proving to be effective. Now the lender is in the midst of a last-ditch bid to restructure by handing control to its bondholders. Will this plan end all the headaches over at CIT Group? If this new plan isn't successful, will the company be forced into bankruptcy?
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CIT Group has definitely had a rough quarter. The deterioration of credit markets during the height of the financial crisis really put the company in a vulnerable place. CIT Group received $2.3 billion in Federal aid last year and another $3 billion in emergency funds from bondholders in July, but that was not enough to even cut the company's debt in half. CIT problems stem from the fact that, unlike banks, it doesn't have a reliable source of funding such as deposits to raise money that it can turn around and lend. The company's low credit rating has made it even more difficult to raise money, so it comes as no surprise that it has been exploring multiple options for financing. The latest option would offer bondholders new debt secured by CIT assets, as well as nearly all of the equity in a restructured firm. The firm believes that this would eliminate 30% to 40% of its more than $30 billion in debt outstanding. If this plan is approved by bondholders, CIT may be able to convince regulators to lift a cease-and-desist order preventing it from taking in new deposits. This would mean more money for the struggling lender. Some CIT bondholders have expressed support for a new debt exchange plan, but a large percentage of them are still not on board. If it was up to taxpayers the deal wouldn't likely go though. While the U.S. would recover a small amount in any debt-exchange plan, it is likely that much of the sum would be wiped out.
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This new source of funding would help the company, but not alleviate all of its problems. Many are suggesting that this is just another thing to delay an inevitable bankruptcy filing. All things considered, CIT is truly hanging on by a thread. If this debt-exchange plan does win approval, it will only act as another temporary bridge. Under either the scenario of a bond exchange or a bankruptcy filing, the shares would lose all or most of their value. The future of CIT Group is still very unclear. The company has run out of options, so if this debt-exchange plan doesn't save the company, the next headline may read “CIT Group Files for Bankruptcy”. Shares of CIT took a beating during early morning trading, losing 41% during the first 45 minutes of the session.
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Commentary on CIT Group
How CIT saved Christmas -- Did CIT extend its life long enough when it got the emergency funding last August to avoid a major problem for retailers this Christmas shopping season?
CIT's Survivor Story -- Some investors think John Paulson, the free market's Timothy Geithner, will engineer CIT's rescue.
Video -- Faber Report: CIT Group
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Other Stocks in the News
Toyota Recalls Millions of Cars -- Toyota Motor Co. (TM: Charts, News, Offers) announced a recall of 3.8 million cars, trucks and SUVs in the US.
Chevron Chief Executive Resigns -- David J. O'Reilly will retire after a decade at the helm of the second-largest US oil company.
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Profile |
Click here to view a detailed profile of CIT Group.
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