Last month CIT Group was close to bankruptcy, but thanks to a successful offer to repurchase outstanding debt, the company will be able to avoid bankruptcy -- at least for now. In July the company failed to get bailout funds from the U.S. government, so some of its bondholders gave CIT (CIT) emergency funding of $3 billion to help it avoid bankruptcy.
Those funds were partially used to offer to buy $1 billion in outstanding debt due to mature Monday. CIT told bondholders if they would not sell the debt back at $875 per $1,000, the company was likely to file bankruptcy. At first CIT said 90 percent of bondholders must agree to the deal, but in the end only 59 percent agreed to the deal, which now CIT says is enough to avoid bankruptcy.
CIT issued a statement saying, "The completion of this tender offer is another important milestone as the company continues to make progress on the development and execution of a comprehensive restructuring plan." Last week, CIT reached an agreement with the Federal Reserve Bank of New York and it is now under the oversight of federal regulators. CIT must submit a plan through the end of 2010 that includes details about how the company will meet current and future capital requirements. This could be the first step to CIT getting bailout money from the government.
CIT provides loans to about 2,000 manufacturers that supply about 300,000 retail stores. The National Retail Federation estimates that 60 percent of the apparel industry depends on CIT for financing. Retailers feared that without CIT, this Christmas season would be ruined.
Lita Epstein has written more than 25 books including Trading for Dummies.
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