CIT Says It Has Deal For $3B Loan to Avert Bankruptcy
CIT Group, Inc., a major small business lender, pulls away from brink.
WASHINGTON, July 20, 2009— -- CIT Group Inc., a leading provider of financing to small businesses and middle-market companies, announced Monday that it reached a $3 billion loan agreement with bondholders to stave off a bankruptcy filing.
This is the first time since the financial crisis began that a large lender has been able to stay afloat without government financing. It was unclear how long the new infusion of cash will keep the company going and whether more money will be needed, but it's a positive sign that risk capital is flowing back into the markets.
"You've got private money coming in and essentially giving a vote of confidence" in banks' future profitability, Vincent Reinhart, former director of the Federal Reserve's monetary affairs division told the AP. "It's encouraging."
CIT, in existence for more than 100 years, now accounts for around 60 to 70 percent of small business financing.
"We are pleased that CIT is in a position to continue to serve our valued small business and middle market customers," Jeffrey M. Peek, Chairman and CEO, said in a statement. "We appreciate the loyalty of our customers and the support we have received from numerous industry associations, particularly over the past few weeks."
The company said that in addition to the 2.5-year loan, it plans to restructure its debts to provide additional funds to shore up its finances.
Dunkin' Donuts and Dillard's department stores are two of CIT's major clients who had anxiously awaited news on the company's fate. Last week, the U.S. government said it would provide no further bailout money to the ailing lender.
The lender is struggling under the weight of ongoing losses, a decrease in liquidity and billions of dollars in debt that is about to come due. It had already received $2.33 billion from the Troubled Asset Relief Program.
The Treasury Department, Federal Reserve and the Federal Deposit Insurance Corp. had debated behind closed doors what to do to help CIT, and concluded that the firm's collapse would not pose a large threat to the U.S. financial system.
CIT recently asked the FDIC for a debt guarantee, an industry source told ABC News, which would allow CIT to issue debt that would be guaranteed by the government and enable the company to bring in sorely-needed cash and continue lending to businesses. The FDIC balked at the request, so CIT then turned to the Treasury department and the Federal Reserve.
"CIT is a major lender for small businesses," said Scott Talbott of the Financial Services Roundtable in Washington, which represents CIT. "The liquidity solution they are seeking will keep many small businesses up and running."
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