CIT Group Inc may announce an agreement on Monday to obtain $3 billion of emergency financing from bondholders, keeping the struggling lender out of bankruptcy, a person close to the matter said.
The money could strengthen CIT's finances and allow more time for the 101-year-old lender to small- and mid-sized businesses to restructure its debt. CIT is expected to announce the agreement before markets open Monday, the source said.
An agreement could also preserve the government's $2.33 billion investment in CIT from the Troubled Asset Relief Program. CIT became eligible for such financing when it became a bank holding company in December.
The bondholder group includes Pacific Investment Management Co, a unit of Allianz SE, as well as other top investors. It is expected to provide financing with a 2 1/2-year term, two people familiar with the matter said.
The people requested anonymity because the talks are private.
CIT shares more than doubled in premarket trading, rising 74 cents to $1.44.
A bankruptcy could have rippled through the economy by making it difficult or impossible for thousands of businesses to obtain financing to run day-to-day operations.
It would have made CIT, with $75.7 billion of reported assets, the largest U.S. financial company to go bankrupt since Lehman Brothers Holdings Inc last September.
The $3 billion financing plan will be backed by CIT's remaining unsecuritized assets, which probably exceed $10 billion, one of the people familiar with the matter said.
CIT spokesman Curt Ritter declined to comment when initial details of the rescue surfaced. He was not immediately available to confirm board approval.
CEO SURPRISED
CIT's problems mushroomed two years ago in the wake of Chief Executive Jeffrey Peek's decision earlier in the decade to expand into subprime mortgages and student loans, both potentially highly profitable but fraught with added risk.
The company has about $40 billion of long-term debt, according to independent research firm CreditSights. About $1.1 billion comes due in August, and another $2.5 billion by year end. CIT has lost close to $3.3 billion since the end of 2007.
After last-ditch rescue talks with the government failed last week, the Obama administration said it was setting high standards for granting aid to companies.
The government's decision surprised Peek, leading him to seek sources from private investors, one of the people familiar with the matter said. The financing is part of a larger restructuring, the person said.
Late last week, industry groups including the National Retail Federation, the National Council of Chain Restaurants and the National Council of Textile Organizations urged U.S. Treasury Secretary Timothy Geithner in a letter to take action to ensure that CIT remains viable.
