By Henny Sender and Saskia Scholtes in New York
Published: July 17 2009 20:15 | Last updated: July 17 2009 20:15
CIT Group and its advisers continued a two-track effort to stave off bankruptcy as JPMorgan tried to raise a cash infusion of $3bn for the embattled lender while bondholders considered either a debt-for-debt or a debt-for-equity exchange offer.
With a funding bridge in place, CIT would then go back to US regulators and ask for permission to transfer more of its assets to its bank subsidiary, people familiar with the case say.
As investors are being approached to contribute to the new facility, they are also being asked about their appetite to be part of any debtor-in-possession financing in case CIT files for bankruptcy protection.
Among banks that would likely participate in any DIP financing are JPMorgan, Goldman Sachs, Morgan Stanley and Barclays, people familiar with the matter say.
Other investors, including hedge funds, also expressed enthusiasm to participate in any DIP financing.
CIT would accumulate cash in the event of a filing, but advisers say that any additional DIP funds could be used to assure customers that the company could continue to make loans to meet their needs.
Both advisers and potential investors seemed slightly more optimistic about CIT’s prospects as the company moved to deal with its problems, following the refusal by regulators to provide additional support this week.
CIT has more than $30bn of unencumbered assets that could provide security for a new bridge financing. In most cases, companies are forced to file for Chapter 11 bankruptcy protection precisely because they lack assets that can be pledged against new borrowings. The company could also raise money by selling off some of its more attractive units, such as its factoring and vendor financing operations – in spite of the fact that CIT has balked at the low prices any sales would generate in the current market.
As late as Wednesday, advisers were confident that CIT would receive government support, if not actual cash.
Earlier this month, CIT was seeking cash from the Federal Reserve in exchange for assets, after being told that the Federal Deposit Insurance Corp would not support its request for loan guarantees.
But by this week, CIT was just seeking permission to move more into its bank subsidiary. It is not clear why the Fed withheld approval for such a move, because regulatory lawyers say such exemptions are routine.
At the time the Fed gave CIT permission to set up its bank last December, it described CIT as “adequately capitalised” while the bank itself was “well-capitalised”.
Meanwhile, CIT’s debt rallied on hopes that the company could reach an out-of-court agreement. Notes maturing in August gained 10 basis points in morning trading, according to Standard & Poor’s Leveraged Commentary and Data.
Copyright The Financial Times Limited 2009