CIT Group (CIT) chairman and CEO Jeffrey Peek announced today that he plans to retire on December 31. The announcement comes right in the middle of closed-door negotiations as CIT tries to get bondholders to accept a massive debt swap or a prepackaged bankruptcy. If both options fail, CIT will head into a Chapter 11 filing from which it may never exit.
Peek announced these negotiations just two weeks ago; Bloomberg.com reported on October 2 that bondholders seeking to avoid collapse were putting together a $6 billion bailout package to help finance a prepackaged bankruptcy if the debt exchange fails. The new package would have lower interest rates than the original loans' 13 percent annual rate. But that week has come and gone, and the deal appears not to have been worked out.
The bondholder steering committee includes Pacific Investment Management Co., Centerbridge Partners, Oaktree Capital Management, Baupost Group, Capital Research & Management, and Silver Point Capital. I suspect that a deal to save CIT may be in the works, but that deal may demand Peek's succession by leaders chosen by the bond-steering committee. (Committee members have not responded to requests for comment.)
In early October, CIT said in a regulatory filing that it was negotiating a new or amended secured credit facility that would ease the terms of its revolving bank lines. The filing said that if it obtains amendments, CIT can increase the $3 billion rescue loan to between $6 billion and $9 billion.
The loss of confidence in Jeffrey Peek probably stems from his leadership's shift in focus for the company. When Peek started at CIT, the company, based in Livingston, New Jersey, focused solely on small- and mid-sized businesses. Peek moved CIT to Midtown Manhattan and began offering subprime mortgages and student loans, a decision that probably led to CIT's downfall. CIT finances about 1 million businesses, many of which manufacture goods sold during the holiday season; when its problems came to light in July after the U.S. declined to give it a second bailout, retailers feared that stores would be empty come Christmas.
So far, CIT has kept the company afloat, but today's news suggests it's on its last legs. Stockholders are quickly bailing out; the stock is down by as much as 15 percent today. Now, with Peek apparently getting out of the way, a deal with bondholders may be more likely. Maybe within a few days a deal will be struck, and perhaps we'll hear whether bondholders name CIT's next leader.
Lita Epstein has written more than 25 books, including Trading for Dummies.
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