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CIT Bankruptcy V2.0 Next; Upcoming Debt-For-Equity Conversion Renders Equity Worthlesser Even As Cramer Pumps Stock
How many times can one of the world's worst-managed and toxic-laden companies be on the verge of bankruptcy? As long as Obama is president, one could answer "in perpetuity" although CIT may finally be on its last breath. The WSJ is out with this stunner:
The fate of CIT Group
Inc. was hanging in the balance Tuesday as the large commercial lender
readied a plan that would likely hand control of the company to its
bondholders.
CIT is preparing a sweeping exchange offer that would eliminate 30%
to 40% of its more than $30 billion in outstanding debt, said a person
familiar with the matter.
For the uninitiated, a debt-for-equity means the old equity is worth zip. Nada. That won't, however, stop it from trading up to $1,000 before the HFT algos decide they need to move and suck the liquidity rebates out of some other bankrupt deranged monster of a company.
The plan would offer bondholders new debt secured by CIT assets, as
well as nearly all of the equity in a restructured company. The new
debt would mature later than current debt, the impending maturity of
which has posed a problem for CIT.
If not enough bondholders agreed to the plan, the company could seek
to execute the restructuring in bankruptcy court, the person said. The
result could potentially be one of the largest Chapter 11
bankruptcy-court filings in U.S. history.
So there you have it: keeping the zombified living dead walking for a few extra months only leads to the same final outcome. Yet the costs to the taxpayers keep climbing.
One issue is the $2.3 billion taxpayer investment made in CIT through
TARP. While the U.S. would recover a small amount in any such exchange
plan, it is likely that much of the sum would be wiped out, said people
familiar with the matter.
Presumably this will shut up all those idiots who have claimed what a success for taxpayers the Fed/Treasury's bailout of everything with a balance sheet has been.
So poor Obama is now in the same place he was in July, when a Hail Mary rescue financing from Pimco, Oaktree and Silverpoint gave the company a few extra months.
Whether to provide further aid to CIT presented a difficult question for the Obama administration.
Failure to do so opened it to the criticism that it was aiding giant
banks but not a smaller lender, and one upon which many smaller
businesses depend for financing. CIT wanted to get in on a program in
which the Federal Deposit Insurance Corp. guaranteed lenders' debt.
Even in case the company manages to finalize its exchange out of court, the resulting company will be much, much smaller. The resulting impact on the millions of small business operators will be dramatic, as during its death throes CIT was still servicing existing contracts. In bankruptcy those will be the first to go.
However, as the WSJ points out, one thing is for certain:
Under either the scenario of a bond exchange or a bankruptcy, the shares in CIT would lose all or most of their value.
So if you are PM who rode CIT from $0.32 to today's closing price: congrats, you made your year. If, however, you were not lucky enough to sell before close today, you just may not be able to afford the down payment on that Hamptons timeshare after all, sorry.
In the meantime, Jim Cramer out with this today:
Citi and CIT Are Primed for Upside, by Jim Cramer, 9/29/2009, 1:54 PM EDT
Citigroup's on the move, so is CIT . I think that Citigroup will be the
biggest beneficiary of the new plan to buy toxic assets, because it is
basically running its SIV as discontinued operations and it could
benefit from the new program. CIT is about the possible IndyMac link-up
courtesy of John Paulson, a real smart guy who was negative about
mortgages before it paid to be negative. Dan Freed on CIT CIT Surges on
Report
of IndyMac Deal
I put both of these up there as examples of companies that won't die,
and because they won't die, they live. I know that seems a little
circular in reasoning, but because Citigroup never suffered a run like
Wachovia and Washington Mutual did, it made it and as our flagship site
mentioned, it is safe. If it is safe, it can go higher.
Because no one forced CIT into bankruptcy, it can live to play again, and when I read in the New York Post that Paulson owns CIT debt, I realized that he's powerful enough to save this company, particularly because he is one of the investors in IndyMac and knows his way around the bottom of the debt barrel.These two stocks represent lottery tickets that are no longer rip-ups because they have made it out of the "critical care" stage and are recovering.
I would buy them both.
No commentary necessary.
h/t Joe Saluzzi
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Here's a "Fat Finger"
Heh, heh...
Everyone who dryhumped this low grade hooker in an attempt to "make their year" just got hosed....
LOL....
SAN FRANCISCO (MarketWatch) -- Embattled lender CIT Group Inc.
(CIT
1.60,
-0.60,
-27.27%)
is in the midst of a last-ditch bid to restructure by handing control
to its bondholders, according to a media report late Monday. The Wall
Street Journal, citing an unnamed source, reported that the plan would
have CIT offer bondholders new debt secured by the firm's assets,
alongside nearly all of the equity in the restructured company. If not
enough bondholders agree to the plan, the result could be one of the
largest Chapter 11 bankruptcy-court filings in U.S. history. CIT's fate
has been uncertain for months, after it succumbed earlier this year to
a lack of funding and bad commercial and real-estate loans.
Fed to the rescue; CIT back up 40%.
PS: Love your work Robo - charts n chicks, what a combo.
CIT -35%?
No worries mate, FDIC, Fed, GS, HFT, JPM, PBGC, PPT, SBA, SLP, TALF, TARP, PPPIP off to the rescue on more time...;
JubileeProsperity.com
So far, Spooks futures are unfazed.
We'll see how the CDS/CDO/squared/cubed, etc. market reacts tomorrow and find how how Bernanke, Geithner, LLP reacts to "mop up" the mess.
LOL.
Not for lack of trying, that's for sure. DXY down almost a full percent so far, and still lots of time for the 'invisible hand' to give the Futures morning wood.
Not enough traffic that the crossroads that CIT sits upon to warrant becoming a GSE.
Anybody remember the jugular-draining terms PIMCO secured in this affair of the heart?
+1
ZH had a very nice piece on that as I recall....
I know CIT pretty much halted small business lending but I wonder if this will have a negative impact in the broader market for small biz lending (assuming anyone out there is actually lending to small businesses).
-hedgie turned small biz owner
JPM will absorb its market share one way or another.
AHAHAHAHAHA CRAMER! He sucks so hard. Can we get a class action lawsuit against him or GE going just for that quote? Something needs to be done to put anyone who listens to him out of their misery.
who started the indymac merger rumor... NY post? Did they pump so someone else could dump
Any class action lawsuits should be addressed to Kaja Whitehouse at the NY Post
thanks TD, i dont think i have any basis for a lawsuit since i dont own and have never owned CIT shares, options or debt. I am hurting to know where these rumors came from and if the originator had something at stake.
I emailed her requesting the source of the so called rumors, I will let you know what she says.
Could we please not give the remnants of Milberg, Weiss any ideas?
I can't imagine that after getting hosed on all these bailouts those vultures somehow come in and take their 33% and we all get a 5 dollar coupon or some crap like that.
check to the dog
Yeah, they may dismantle it and send the pieces to JPM, BAC, BBT, etc. in order to turn these banks into "small business lenders".
Of course, the Toxic Waste left behind will be ejected into Outer Space (aka Fed Balance Sheet).
Umm, Umm, Umm, Barack Hussein Obama
Space operations are being troublesome. Satellites bashing into each other at 15,000 miles an hour.
Satellites meant to give bs data to back up bs reiterative models not working out.
http://www.wired.com/wiredscience/2009/02/launchfailure/
I guess it's just not a good year to be a bad guy.
Looks like the climate change is refusing to be mitigted. LOL
Federal Reserve official afro pick? That's what the emblem above looks like to me. Wouldn't it be baddass if Obama refused haircuts and then used one to puff out his fro?
Or wore cornrows like Snoop Dog. Yeah, that's the ticket. Then Obama says,
"I'm a lame duck president, get over it bitches. I'm president, and you ain't." Then he says, "Oh, by the way, we're auditing the Fed."
Then his homies all show up with their AKs, glocks, and Uzis. Ron Paul is there sporting his new grill, Grayson is packing too. All of them wearing cornrows and dressed in 1776 period clothing, blinged out "original pimp style" except for Carol Warren who is decked out as a Fem Fatale with a Gatling gun.
Ron Paul steps forward and shoves Bernanke in the chest with the side of his AR, shoving him stumbling backwards through the doors of the fed. Ron growls, getting all up in his face and sh!t, "I got my mind on our money and our money on my mind."
Was that the sort of thing you were thinking of??
hehe U B so funny tonight MsCreant..
Since you went there.. And where the bot drivers and their BL CCE propped sushi eating bosses dream of...
http://www.youtube.com/watch?v=OeYo2rM1kBM
I would rather hope the mentioned folks would join us..
http://www.youtube.com/watch?v=EAchKt2xjsw
Your prior Snoop post set the stage for that particular performance.
Wish you were here is probably one of my top 10.
My ears are a little biased towards the original. Some vocalists are trying to imitate themselves when they were younger, some just are...
Indeed.
I got the live chance for The Wall # 2 & 3 in LA and Animals in Portland. As you said, some things just are.
A "Twiztid" slant on the money & mind..
http://www.youtube.com/watch?v=jcr2l0aONpw
BTW, I noticed your link to the classic Cash remake. Here is the original.
http://www.youtube.com/watch?v=iFx2TmQfM-o
Trent Reznor said his career peaked when Johnny did that. I hated Johnny (hated someone who loved him) then heard Johnny's version of Hurt and had to open my mind. It was a good moment, letting go the hate.
I used to believe enough love could solve anything. This financial crisis has bitch slapped me around regarding that. My idealism is still there, but these sociopaths running things, wow. I have actually had to open my mind in an ugly way. Love can power the defensive imperative to.
So long for now!
This should be done with all those financial black holes(called banks). Give a haircut to the stock and bondholders and not have the US taxpayer picking up the tap.
Infowars alert (this is the second in as many days)
Morgan Stanley's Mack Proposes Single Regulator to Oversee Banks Worldwide
I saw someone wearing an InfoWars shirt in San Diego last Sunday (at Perry's).
Congress has long ago given up all moral authority on this issue. But, go figure. When you lay down with whores, expect to wake up with STD's.
Goldman and Bank of Amerika run the markets along with Geithner, and beagle boy Ben. There is no free markets, only welfare capitalism and socialism for capitalism.
good articles; good articles 4 slow news day ..http://www.. hat tip: finance news & opinion updated daily
so i guess any possibilities that CIT can pull a page out of the old Marriot International / Host Marriot playbook are slim to none? ;-)
The insecure Cramer is in bed with many key players who run hedge funds. They feed him self-serving material so he has some "original" content not provided by his audience. This is what his show is: a journalistic take on what his hedge fund buddies are doing. If he thinks there's a play there it's because the hedgies have told her there's a play there. It's another one of these double- or triple- cross events. Do I sell because they say buy or do I buy because they say buy and think we'll read sell. Frankly, seems like a waste of time. FRE at .25 seemed promising, as Barney Frank had no choice but to ask for a squeeze, and salvage the stock. CIT north of $2? A dud either way, short or long. As a side note: J. Paulson seems to be playing the media (including ZH) better than even Uncle Warren, which is saying something.
"As a side note: J. Paulson seems to be playing the media ..."
I'll be very interested to see if he made any sales on the BAC hunk he took on....as well as RF and their new team member, Condi Rice.
Yes, ScrEamer moves stocks for his string-pullers (love to see some of the large CIT sells after the rumors and pump today). I am now concerned that JPaul has too been brought into the shadows, as many successful peers have been. Their pull has never been stronger on those who seek grandiosity. (watch for increasing JPaul appearances on CNBC for confirmation)
Hmm, interesting little selloff in the dollar tonight. Nice little side benefit for tomorrow morning.
I'm an attorney and I had to give a buddy some legal advise when Cramer's attorney was calling threatening to sue him over a paper he had written regarding the disposition of stocks post cramer advise. In short, I believe the thesis was cramer = stock aids. Short pop for the gang and then snafoozle for all those who held for longer than a brief period of time.
"before the HFT algos decide they need to move and suck the liquidity rebates out of some other bankrupt deranged monster of a company." LoL
"These two stocks represent lottery tickets that are no longer rip-ups because they have made it out of the "critical care" stage and are recovering. I would buy them both. "
I would feel a whole lot better if he would have said- I did buy them both.
Look, it went down to .32.
Just like Lehman, there was lots of time to make arrangements for the funeral. I'm sure a large part of Paulson's stuttering problem was his disbelief that so little little had been done by the parties at risk in the 2-3 months that preceded the end.
I have watched, with utter fascination, the long slow descent of Jefferson County, Alabama's struggle to avoid the inevitable title of largest municipal bankruptcy in US history.
This announcement of CIT's must dovetail to the seemingly desperate act of the FDIC to shore up its funds in a scheme so ludicrous it's seemingly (not to mention seemly) a scheme right out of the strategy for the board game "Monopoly".
JPMoneybags keeps rolling doubles... But I'm not sure how many more times Free Parking can be funded, if any.
Futures could care less which makes me very suspicious.
Watch some last minute deal get done magically saving the commom and the stock rallies
I wouldnt be surprised, no way.
CIT to open at $7
".....old equity is worth zip. Nada. That won't, however, stop it from trading up to $1,000 before the HFT algos decide they need to move and suck the liquidity rebates out of some other bankrupt deranged monster of a company."
TD...you gotta stop writing shit like that when I am eating at the computer.
and my beer turned to piss
I vote to give Tyler Durden a Pulitzer Prize.
Cramer: The moral of the story? It doesn't pay to play, so why bother.
A note to add on the NY Mag hatchet job, (again read it for free at Barnes & Noble or your local newstand, do not frequent their website as the visits could increase their ad revenue), Bruce Wasserstein, the Chairman at Lazard owns both NY Mag and The Daily Deal. Obviously Wasserstein has a vested interest as head of a "boutique" I-bank to maintain the status quo in the financial markets and also the last thing he would want is his financial news mag The Daily Deal getting trumped on a semi-regular basis by a free website:) Moreover, you get a better idea at how intertwined Brucie is with the people running this country by looking at his FEC contributions:
http://query.nictusa.com/cgi-bin/qind/
"...how intertwined Brucie is with people running this country..." I'm sure you mean Goldman Sachs.
http://www.lazard.com/PDF/Lazard%20Secondary%20Offering%209-08-09.pdf
Cramer selling tickets to the rape tunnel again?
http://www.youtube.com/watch?v=AH-s8PYbimc
Polanski's work, right?
when i read this note by cramer all i think is, "run forest run"....
This is why people say bullshit instead of bearshit
I'm pretty sure Cramer had horns, but they made him file them off before going on TV. And it would explain the permanent red face. Rumor is that he had originally come to collect on the deal he made with GE, but Jeff talked him into alternative terms.
I guess its time for him to appear on Jon Stewart!! lol
And of course GS gets to seize $3B of collateral and steps to the front of the line to collect their remaining $1.6B in facility fees (net of PV.) Nice work if you can get it.
----
On June 6, 2008, a wholly owned subsidiary of CIT entered into an agreement with Goldman Sachs International (“GSI”) pursuant to which GSI will provide a 20 year, $3 billion committed securities-based financing facility to CIT with a 15 year weighted average life. Subject to concentration limits, the securities included in the facility may be backed by commercial loans, equipment contracts, FFELP student loans, aircraft or rail leases, private student loans or other assets. The annual facility fee payable to GSI is 2.85% on the $3 billion maximum facility amount. Amounts financed under the facility will bear the additional cost of 3-month LIBOR. In the event that CIT exercises its right to terminate the facility early, CIT will be required to pay GSI a make whole amount equal to the discounted present value of the facility fee for the remaining term of the facility. Management intends to account for the facility as a secured borrowing in CIT’s financial statements.
http://edgar.sec.gov/Archives/edgar/data/1171825/000089109208004007/e324...
I think something is up here.
Paulson loves to use/play the media. He is almost a freak about it.
Hmmmm
Yeah, today's rumor de jure had "stank" written all over it.
Sucks to be a holder at the close, though.
Just wondering here.....suppose you were a large hedge fund manager who made billions with CDS positions but you also did a good deal of NSS that helped your CDS trades. After the crash, some authorities wanted to light your ass on fire and hammer you as a poster boy for NSS. They have leverage. They suggest you mend your ways and toss a few of those billions into certain companies in need of a public relations boost. Desirous of enjoying your billions, you play ball and take some very public stakes in, e.g., BAC, C, CIT, etc. You don't get prosecuted. Maybe in the end you lose on your bank "investments", but still have billions to enjoy.
Just wondering.
I'm curious as to why JP has CIT debt. I think he might be tryin too hard.
John if you're reading this...take your losses bro, can't win em all (or stop taking advice from Alan Greenspan...he's been wrong for a while now)
I think S. Klarman and Baupost were in on that "emergency" financing, no?
Serious question, what the fuck were the guys @ Pimco (etc) thinking with this investment, or was it one of those invest the $ or have your portfolio take a massive hit things?
Really nothing to say. Just wanted to take the math quiz to be eligible to post. Obviously my academic skills are better than Congress.
C did the same thing and went from .50 to 5.00
Alice is in wonderland
I'm one of the shlubbs who had CIT in July right before the first gonna-go-bankrupt episode. I figured Timmy & Ben had bailed -everybody else- out, why not CIT? It was a sure winner. Needless to say, I unloaded this mudball at a 75% loss and cringed as bondholders found a non-bailout solution which drove the stock to $2.
If Timmy & Ben bailout CIT tomorrow, it'll be like getting yet another kick to the nuts.
Looks like your get rich quick scheme didnt work out
Latest quote for Duncan Donut financing: 3 points a month. 2% as interest, the other 1% amortization of the principal. That is what no CIT gets you. No business can afford a debt cost like that. Losing CIT will just put another straw on the back of the CRE camel.
I always enjoy your posts Bruce.
Goldman and Bank of Amerika run the markets along with Geithner, and beagle boy Ben. There is no free markets, only welfare capitalism and socialism for capitalism.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & opinion updated daily
O.K. if tommorow CIT WSJ news was confirmed,the question becomes why the stock volume(and price)shot up today?isn't there something fishy for the SEC to look at?
This is like GM, part II. Minus the $50B in "loans" from the government.
My guess is the bondholders agree to the swap. This, in turn, should wipe out all but a token amount of equity. The fact that CIT will be eliminating about $12B in debt will be the headline and the stock will stay above $1. Those that thought they could get rich shorting/buying puts are going to be left scratching their heads.
Scenario two is more interesting, though. CIT heads to BK court and the TARP investment will most likely be worth zero. This will give the part of congress not connected to Wall Street's teet some ammunition to possibly clawback TARP funds. This would cause quite the problem in the lending arena, at least in the short-term.
I am assuming "regulators" will ensure the deal is done in their best interests. Obviously, GS will be willing to deal at the Fed's request.
What I am most interested in is what happens with CIT bank in the case of them heading to BK court. Is the FDIC possibly on the hook here?
Probably not worth thinking about. The Fed/Treasury/GS/JPM will ensure "there is nothing to see here. move along!".
Edit: You know you are in bad shape when you can't easily raise money right now. Every over-leverage, no equity, money-losing company can borrow right now on the cheap.
Citibank/Barclays to CIT rescue tonight per Bloomberg....
http://www.bloomberg.com/apps/news?pid=20601087&sid=afQgXcoYl9rE
Goldman and Bank of Amerika run the markets along with Geithner, and beagle boy Ben. There is no free markets, only welfare capitalism and socialism for capitalism.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & opinion updated daily
why do you keep spamming the comment threads?
"
Serious question, what the fuck were the guys @ Pimco (etc) thinking with this investment, or was it one of those invest the $ or have your portfolio take a massive hit things?"
well, it's a small price to pay for F&F (freddie mac ) bailouts. Since the largest beneficiary of those (in the US) was PIMCO a large favor calls for a small favor. Got to love, G&O boys network.
What exactly was the amount of Pimco's investment in CIT ??
The Pimco gang would not go here without a seriously secure angle on a government backstop. My guess is they saw the $ 2.3B TARP bailout as a TBTF insurance policy. So something will be cobbled together by weekend . Otherwise, the magnitude of a CIT BK restructuring will crush the other financials by association.
Whats this im hearing about the how the WSJ article was only rumours, an attempt to get the stock back down to $1.60?
Actually Cramer gives good advises. just do the opposite...
Please T.D. can you help go the the Sec filing the Fed's are using a Sec-3 form and a Prospectus to replace stocks, bonds, muni's in IRA, 401k's etc with CDS and people are buying company's unsecured senior debt notes instead of stocks or ETF's the american people will be broke when this comes out and their are moving the monies to Euroclear and Clearstream bank which is owned by the IMF converted in to EuroBonds issued in Europe but considered US Dollars funds will go into effect today!!!! there are alot of good hard working people that do not deserve this thank you for taking the time to read this and pray nobody loses everything thank you again
Stock traded as low as $1.11 in pre-market, now at $1.35 but chopping around. Bonds opening 3pts lower in short-end, worse firther out. Nothing in CDS yet (went out 32/34% upf in 5Y last night).
The more interesting question is: will this restructuring trigger the CDSs? Will it actually come to an act of default, or will that be avoided by voluntary give-ups by certain creditors. Some people may get completely swung around the fence if the CDSs don't get triggered. Does anyone have any thoughts on this?