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Direxion Daily Financial Bear 3X ETF Message Board

  • quailrunrd quailrunrd Aug 17, 2009 1:48 PM Flag

    CIT dodges the bullet for now

    But where do they get their capital for cash buybacks. Can't be from current bondholders.

    NEW YORK (AP) -- Commercial lender CIT Group Inc. said Monday its offer to repurchase outstanding debt at a discount -- a crucial step to help stave off bankruptcy -- was successful.

    The embattled New York-based lender offered to buy $1 billion in debt that was set to mature Monday. CIT warned that if not enough bondholders were willing to sell the debt back to the company, it would likely have to file for bankruptcy protection.

    Shares of CIT jumped 10 cents, or 7.1 percent, to $1.51 in midday trading.

    The company said nearly 60 percent of the debt was tendered for purchase, barely topping the 58 percent minimum needed to complete the offer. CIT is paying $875 for every $1,000 tendered as part of the offer.

    Despite the completion of the tender offer, CIT is still facing some challenges. It could continue to struggle with liquidity issues as more debt is due to mature next year.

    Over the past three months, investors have increasingly worried about a potential failure of the lender, according to a new report from Fitch Solutions, the data and analytics unit of Fitch Group. The report showed CIT's credit spreads -- considered a proxy for how risky it is to invest in a company's debt -- have widened sharply in the past three months.

    Some experts feared that if CIT collapsed it would deal a crippling blow to an economy still bleeding hundreds of thousands of jobs a month despite a nearly $800 billion federal stimulus program.

    The retail sector would be hit especially hard. CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts say 60 percent of the apparel industry depends on CIT for financing.

    Last week, CIT reached an agreement with the Federal Reserve Bank of New York that puts the company under the oversight of federal regulators. The agreement requires CIT to submit a plan for how it will maintain sufficient cash. It must also provide budgets through the end of 2010 that include details about how the company will meet current and future capital requirements

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