CIT Finds Short Term Funding from Bondholders
CIT Group has apparently reached an agreement with bondholders that will provide the company the financing it needs to meet near-term debt obligations and avoid bankruptcy, which leaves much of the furniture industry breathing a sigh of relief.
CIT is, in addition to being the biggest name in furniture industry factoring, is a major lender to small and mid-sized businesses. Reportedly, the failure of CIT Group would leave approximately one million small business borrowers unable to meet payroll. CIT Group provides financing to airlines, railways, retailers and manufacturers. According to the Small Business Administration, CIT was the country’s top lender to small business in 2008 with $524.9 million in loans. 2009 loan volume stands at $65.7 million and places CIT Group as the 16th largest small business lender.
The company has secured $3 billion in financing from six of its largest bondholders, according to financial news reports, and will pay $10.5 percent in interest for the funds. Lenders mainly comprised a group of hedge funds such as Baupost Group, Capital Research & Management, Centerbridge Partners, Oaktree Capital Management, Pacific Investment Management and Silver Point Capital.
Katie Benner at CNN Money asks if CIT can end the bailout mentality which permeated the first half of 2009. The bridge financing should give CIT the time it needs to try and pay down or renegotiate the money it owes these lenders. And it significantly increases the odds that CIT will make good on the $1 billion debt payment due to its bondholders this August. Benner points out that a private loan of this sum is a hugely positive sign for risk appetite.
CIT had already received $2.3 billion last fall from the government’s Troubled Asset Relief Program; that money would have been lost if CIT had been forced to declare bankruptcy. The New York-based firm’s ability to craft its own rescue deal could help reassure those people worried that the banking system would forever need Uncle Sam’s support in order to function.