CIT debt proposal could hit US Treasury

[BR_Parkway]

The US Treasury could take a sizeable loss on its $2.3bn investment in CIT Group, the US commercial lender, if it and the company’s bondholders approve a debt restructuring proposed this week.

The embattled lender, which focuses on small and mid-size businesses, has offered its bondholders a debt exchange that would reduce the company’s $30bn debt load and grant bondholders preferred stock amounting to between 92 and 94 per cent of its equity.

The restructuring also relies on the US Treasury to agree to convert into common equity its $2.3bn of preferred stock in CIT, issued in December as part of the troubled asset relief programme. After the conversion, the Treasury and other preferred stock holders would be left with between 3.5 and 5 per cent of the company. Such a move would result in a “substantial hit” to the Treasury’s investment in CIT, according to people close to the situation. These people said the Treasury’s position remains fluid but that the government is aware of the company’s difficulties. The Treasury did not return calls seeking comment.

If the company does not win the necessary concessions from at least two-thirds of its bondholders, CIT will automatically apply for pre-packaged Chapter 11 bankruptcy protection for its holding company, according to the proposal. Under this scenario, the Treasury’s investment in CIT would be wiped out.

http://www.ft.com/cms/s/0/1d7d61e0-afa2-11de-ba1c-00144feabdc0.html

You have to wonder if taking that $2.3bn and making all the payments due for a couple of months would have worked out better for both the businesses that relied on these loans as well as the bank.

[AllentownJake]

1. Cut our losses

From now on any of these banks need more money let the fuckers fail.

[Autumn]

2. How about that

hand them $2.3bn and they still can't make end meet.