Private rescue of CIT marks shift in crisis

NEW YORK -- The commercial lender offered the grim assessment only a day after major bondholders agreed to provide it with a $3 billion loan. CIT, one of the largest lenders to small and midsize businesses, was forced to scramble in recent weeks to line up new funding as it faced mounting liquidity pressure amid upcoming debt maturities and as customers tapped their credit lines.

CIT said in the filing with the Securities and Exchange Commission that the new loan might not provide enough relief to cover the liquidity squeeze.

CIT said it still needs to pay off about $7 billion in debt maturing over the next year, including $1 billion in August. It has launched an offer to repay that $1 billion in maturing debt at a discount.

CIT was forced to turn to bondholders in recent days for help after the government refused to save the company last week.

CIT said late Monday it had reached a deal with key bondholders, including bond manager Pimco, to receive a 2.5-year secured loan facility.

That $3 billion loan comes at a high price — an interest rate of about 10.5%.

At the same time it agreed to the loan, CIT launched the cash-offer for $1 billion worth of senior notes due Aug. 17.

It is offering $825 for each $1,000 worth of notes tendered on or before July 31, and $800 for notes tendered between Aug. 1 and Aug. 17. Lenders involved in the bailout deal have agreed to tender all of their Aug. 17 notes, CIT said. The company and the steering committee of bondholders now will work on drawing up a number of debt swap offers designed to alleviate CIT's debt burden and further shore up the company's cash position.

Failing to garner enough tender offers for the upcoming debt could force it to file for bankruptcy protection, CIT disclosed in the SEC filing.

Should CIT collapse, some experts fear 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.