Sunday, July 19, 2009

CIT: L+1000 Bridge Financing

Sunday night edition of America's favorite game: kick the can down the street, better known as "someone else's problem." From the WSJ

The final term sheet still needs to be reviewed by the various financial and legal advisers, said the people familiar with the matter. And there is the chance that a final deal could falter over last-minute negotiations.

Under the proposal, CIT would likely pay interest rates 10 percentage points above the London interbank offered rate, said these people. (As of Friday, three-month Libor stood around 0.5%.) CIT has also agreed to pledge some of its highest-quality loans as collateral on the $3 billion package.

The new loan could act like a "bridge" to a series of debt-exchange offers that CIT would launch in order to get bondholders to swap some of their bonds for equity in the company or for new debt that matures later.

J.P. Morgan would have considered lending if CIT were first to seek bankruptcy protection, but the bank "couldn't get comfortable with a deal outside (bankruptcy) court," said one person familiar with the matter.

CIT's advisers, which includes Evercore Partners, then launched talks with its bondholders, led by investment firm Centerbridge.

You mean after Dana and Extended Stay Centerbridge is still around? And now CIT? Did these guys just buy whatever bonds Goldman was a size seller in?

Also from Reuters:

The $3 billion rescue financing plan will be backed by remaining unsecuritized assets which likely exceed $10 billion, another source familiar with the matter said.

"The $3 billion is new money but securitized by all the remaining unsecuritized assets which probably exceed $10 billion," that source said.

So i) bondholders are screwed either way, ii) the company will pay 10%+ on the bridge instead of paying 3.5% on a DIP, iii) the stock will pop tomorrow only to crash to zero ala GM soon enough, iv) Peek will cash out, and v) in 6 months when chapter 11 is inevitable, the company will suddenly become Too Big To Fail and taxpayers will be on the hook after the bulk of any salvagable value will have been leaked away.

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