By Pierre Paulden, Linda Shen and Caroline Salas
July 16 (Bloomberg) -- CIT Group Inc. bondholders are holding calls today to discuss whether to swap some of their claims for equity to reduce the 101-year-old lender’s indebtedness, according to a person familiar with the situation.
Pacific Investment Management Co., CIT’s largest bondholder based on regulatory filings, was to host a call, and debt owners are considering hiring financial and legal advisers, said the person, who declined to be identified because the discussions are private. The company hasn’t proposed an exchange offer.
CIT is running short of cash and may need as much as $6 billion to avoid filing for bankruptcy protection, after the U.S. wouldn’t give the firm a second bailout, CreditSights Inc. analysts said. CIT, which has reported $3 billion of losses in the last eight quarters, received $2.33 billion in funds from the U.S. Treasury in December and hasn’t been given access to the Federal Deposit Insurance Corp.’s debt-guarantee program.
“CIT indicated that it needs at least $2 billion of rescue financing in the next 24 hours or it would likely file,” CreditSights analysts Adam Steer, David Hendler and Pri De Silva wrote in a report. “We believe the figure is in the range of $4 to $6 billion plus, making outside capital sources shy away.”
Steven Vames, a spokesman for Newport Beach, California- based Pimco, declined to comment. CIT spokesman Curt Ritter didn’t immediately respond to a message.
Debt, Shares Plunge
If bondholders are able to swap as much as $6 billion, that may reopen talks with the U.S. government for a bailout package, Jeffrey Werbalowsky, chief executive officer of Houlihan Lokey Howard & Zukin, said on another call offering his firm’s services to creditors, according to the person. Werbalowsky said there may not be time to complete a debt exchange before CIT goes bankrupt, the person said. Werbalowsky didn’t immediately return a call seeking comment.
CIT’s debt tumbled and the shares plunged today. CIT shares fell $1.23, or 75 percent, to 41 cents as of 4:15 p.m. in New York Stock Exchange composite trading. New York-based CIT’s $1 billion in floating-rate bonds that mature next month fell 22.5 cents to 61.5 cents on the dollar, according to data from Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Credit Rating Cut
Fitch Ratings slashed CIT’s credit rating seven grades to C today, saying in a report that “default of some kind appears imminent or inevitable.”
A failure of CIT, which has almost $76 billion in assets, would be the biggest bank collapse by that measure since regulators seized Washington Mutual Inc. in September and would trigger more credit swaps than any default since Lehman Brothers Holdings Inc. that same month.
“In the short term it may have some devastating impact,” Al Ferrara, head of the retail practice at accounting and consulting firm BDO Seidman LLP, said today in a telephone interview. “You may suck out some liquidity from retailers and vendors when they need their liquidity the most,” before the back-to-school season.
Talks with regulators broke off yesterday and “there is no appreciable likelihood of additional government support being provided over the near term,” the firm said in a statement. CIT, once the biggest independent commercial lender, may seek court protection if no U.S. aid emerges, Standard & Poor’s said this week. The company said it is “evaluating alternatives.”
President Barack Obama, “when he came into office, was clear that he would have a very high standard for what companies receive assistance from the federal government and the American taxpayer,” said Bill Burton, deputy White House press secretary, aboard Air Force One today traveling to New York. “A lot of that had to do with whether or not they could show themselves to be sustainable in the long term.”
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