Bloomberg: CIT May Pit Bondholders Against Each Other With Swap
CIT Group Inc., the 101-year-old commercial lender, will seek board approval as soon as this week for a voluntary debt exchange that may pit bondholders against each other and leave shareholders almost wiped out.
The company has been in talks with a steering committee of bondholders before a deadline today to present a restructuring plan, according to a person familiar with the matter who declined to be identified because the negotiations are private. At the same time, New York-based CIT is proposing that debt holders vote on a pre-packaged bankruptcy plan in case the exchange fails, the person said.
CIT may adopt a plan similar to one used by Residential Capital LLC in December in which the company offered higher priority for repayment to holders of bonds that mature sooner, according to Adam Steer, an analyst at CreditSights Inc. in New York. CIT needs to exchange debt to raise sufficient equity to meet Federal Reserve capital requirements and fund itself, he said.
“We have seen exchanges in the past that pit long-dated bondholders against short-dated bondholders,” Steer said in an interview. “We believe CIT’s exchange could have a similar dynamic.”
A CIT spokesman, Tim Lynch, declined to comment on the exchange terms.
CIT is not as huge as Lehman - so I just hope media and politicians aren't hiding the truth. It could be devastating if another Domino chain effect were to happen.