CIT Bondholder Call Today Likely To Decide Company Fate
Dow Jones reporting that a select group of CIT bondholders, led by Little Bear Investments, will hold a 4:30 pm call with the company to discuss preferential terms to the proposed exchange offer which would result in a "leaner and meaner" Club CIT. The issue: long-dated creditors are getting a rather unpleasant deal in that even while they will not be offered to roll their debt holdings, what they will get is a "small amount of preferred shares in the restructured entity."
From Dow Jones:
Under the exchange, bondholders would get new secured debt worth as much as 90 cents on the dollar if they currently own bonds that mature this year, but would end up with less if they own bonds maturing later.
The sliding-scale ratio of debt to equity offered to bondholders under the plan is of a particular concern to holders of CIT's 12.00% subordinated bonds due December 18, 2018, and 6.10% junior subordinated notes due March 15, 2067. Owners of this debt aren't being offered any new debt in the exchange offer and only a small amount of new preferred shares in the restructured entity.
Yet, as often happens, these calls are merely for postuing purposes. The final, outcome, as predicted by CreditSights does not look good for creditors (and likely not good to the debtor either).
Analysts at CreditSights said in a note to clients Monday that CIT's debt exchange has "very little hope of succeeding," adding that owners of CIT's bonds should sell their debt. "Currently CIT's interest expense is too high, it cannot borrow economically to fund new business, and its liquidity is stressed," the analysts said.
The alternative to a failed prepack is, of course, free-fall Chapter 11, although judging by which deals are representative of CIT's loan portfolio, that 11 could promptly turn into a 7, reminding market participants just how horrendous the assets that backstop the trillions in outstanding debt really are. And once you remove the government's backstops (never) CIT's fate would be promptly followed by virtually all of its financial peers.