CIT Group Bankruptcy Likely; No Bailout for Commercial Lender
Posted on | September 30, 2009 | No Comments
CIT Group is facing the reality of bankruptcy as shares plunged 93 cents, 45%, to $1.25. Shares got as low as 41 cents for the commercial lender when there was talk of a bailout back in July. The New York based financial institution is one of the largest lenders to small and midsized businesses. CIT is currently preparing an exchange offer that would eliminate up to 40% of its $30 billion in debt.
CIT spent the entire summer trying to avoid bankruptcy due to loan losses and funding costs. Like many lenders, the company has been crushed by the downturn in the credit markets. In the past CIT relied heavily on short term debt to fund its operations but this type of debt has basically disappeared since the credit crisis began.
CIT Group received $2.3 billion in Federal aid last year and another $3 billion in emergency funds from bondholders in July. It seems as if the extra money from bondholders will not be enough as the financial firm is on the brink of collapse. Any new deal with bondholders will likely erase most of the government’s $2.3 billion. The Wall Street Journal reports that if the debt exchange with bondholders falls through CIT Group will likely seek bankruptcy protection. If this occurs, this would be the 5th largest bankruptcy in the history of the United States.
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Author: Mike Garner
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