CIT Group is one of the largest lenders to small- and medium-sized businesses in the U.S. But it has been plagued with financial troubles for nearly a year now. Last year the firm received $2.3 billion in federal bailout money. That helped them stave off bankruptcy for a while. Then this past July it received another $3 billion loan from some of its largest bondholders.
Apparently these stimulus packages are not enough to keep CIT Group Inc. (NYSE: CIT) afloat. The root of the problem is $30 billion dollars of outstanding debt. The latest maneuver would be to offer bondholders a stake in the company. This move would eliminate 40% of its outstanding debt, according to a Wall Street Journal report.
The key sticking point here is that by turning over control to bondholders, common shareholders would be wiped out. In addition, the $2.3 billion in federal stimulus money would go up in smoke.
If this latest debt exchange is not successful, the CIT group would seek bankruptcy protection in order to restructure its operations. This would be the fifth largest bankruptcy in the U.S.
Shares of CIT took a pounding on the exchange and were down 99 cents to $1.21 per share Wednesday.
Another rumor floating about is that John Paulson is considering merging CIT with failed mortgage lender IndyMac Federal Bank.
Do you believe that the government will continue to bailout CIT?
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Reader Comments (Page 1 of 1)
10-01-2009 @ 10:46PM
ij70 said...
I think they will.
10-07-2009 @ 8:24PM
igor said...
why would common shareholder be wiped out in case bondholders accept the debt exchange?