With a bailout of CIT Group Inc. (NYSE:CIT) looking like it's not going to happen, investors braced much of Thursday for the impact that a bankruptcy filing by the lender might have. The run on the bank continued Thursday as the company's clients rushed to max out their credit lines before it's too late, while lenders stayed wary of extending credit to CIT for fear of a Chapter 11 filing, worsening CIT's financial situation throughout the day.
Credit default swaps for the 101-year-old lender soared higher, with issuers asking for up-front payments of 47% of the contract ($4.7 million to insure $10 million of debt for five years) plus $500,000 a year, CMA DataVision told
Bloomberg.
When not insuring against a default, investors rushed into Treasuries. The prices on Treasuries 12-months and longer were up all Thursday; however, prices on shorter-term T-bills were actually higher by Thursday afternoon.
With an axe hanging over CIT's head, the company's bondholders are reportedly in talks about possible debt-for-equity swaps in the hope that reduced payments on the bonds will allow the company to weather the storm and eventually make bondholders whole.
Bloomberg is reporting that Pacific Investment Management Co., CIT's largest bondholder based on regulatory filings, plans to host a call, and debt owners are considering hiring financial and legal advisers, according to a source.
By late afternoon
The Wall Street Journal was reporting that CIT had asked existing debtholders for $2 billion to stave off Chapter 11, giving them 24 hours to decide.
CIT is estimated to need as much as $6 billion. -
George White
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