CIT needs $7B in next 12 months

— -- It's going to take more than a $3 billion loan to erase CIT's woes, according to a regulatory filing released by the company Tuesday.

CIT Group,CIT which mainly provides loans to small and midsize businesses, still isn't ruling out the chance of filing for bankruptcy protection unless it's able to navigate through a tricky refinancing process. Late Monday, the company said it received a $3 billion loan that matures in 2½ years from its top creditors.

Even so, one of the biggest hurdles approaching is the need for the company to buy all $1 billion of notes due Aug. 17, 2009. Even beyond that crunch, the capital demands at CIT are significant, approximately $4 billion, based on the Federal Reserve's stress test, the company says.

Meanwhile, the underlying business continues to erode, and the company expects to post a second-quarter loss of more than $1.5 billion. Already-hammered shares of CIT plunged 22% Tuesday, falling 27 cents to 98 cents.

"CIT is in an extremely difficult situation," says Randy Marshall of consulting and internal auditing firm Protiviti.

The challenges CIT still faces include:

•Severe cash crunch. Many CIT customers are drawing down their loan lines, making the company's cash situation worse, says Sameer Gokhale of Keefe Bruyette & Woods. CIT says it needs $7 billion in cash to continue through the next 12 months, including the $1 billion due in August.

•Tight leash by regulators. CIT was approved to become a bank holding company, which in theory allows it to take low-cost deposits and lend the cash out for a profit. But such deposits aren't going to help the company stay afloat, because the Federal Deposit Insurance Corp. has prohibited CIT from exceeding its deposit level as of July, which was $5.5 billion, Gokhale says.

•Dwindling collateral for raising additional money. To get the $3 billion loan, CIT has put up practically all its assets, meaning it will have little to offer future lenders as collateral, Gokhale says.

•Need to navigate a difficult restructuring. CIT must develop a restructuring plan that's acceptable to its board and lenders by Oct. 1. Most likely, that will require remaining bondholders to agree to exchange their bonds for stock, Gokhale says. Meanwhile, downgrades in the company's credit ratings have locked it out of the commercial paper and unsecured loan markets, CIT says.

The many risks explain why the lender is at an intersection where it could either recapitalize itself and survive or stumble into bankruptcy court, Marshall says. "Once these things start going, they go fast," he says.