CIT Group (CIT) shareholders have had a wild ride for the last five months. They've had to deal with concerns about bankruptcy, threats from its bondholders and plans for the firm's future as the CEO announced he was stepping down. CIT stock traded near $4 in early June. Since then, it dropped to 41 cents on July 15, when it looked like the company wouldn't make it, and has gyrated between that low and a recent price of $2.20. Shares closed at $1.12 on Oct. 16.
CIT's board and many of its bondholders are going to take one last stab at keeping the firm afloat. The company said that "it has amended its restructuring plan to further build bondholder support. The amendments have been approved by CIT's board of directors and the steering committee of CIT's bondholders." The new plan will offer some bondholders more equity in CIT, accelerate repayment of new debt taken on to keep the company in business, and shorten the maturities of all new notes and junior credit facilities by six months.
Unfortunately, at least two problems remain if the new proposal is accepted. The first is that the thousands of small-business customers who do rely on CIT for financing may still desert the company because of fears about its solvency. CIT's base of clients could drop so low that its could come into question again.
The second issue is that the money CIT would raise under the new agreement may be insufficient for it to continue to supply loans to whatever customer base it still has left, or any new customers that come to it in the future.
Otherwise, the plan is just fine.
Douglas A. McIntyre is an editor at 24/7 Wall St.