CIT Group Inc. said in a regulatory filing Tuesday that it might have to file for bankruptcy protection if not enough bondholders participate in a recently launched debt exchange.
The commercial lender offered the grim assessment only a day after major bondholders agreed to provide it with a $3 billion rescue loan. CIT, one of the nation’s largest lenders to small and midsize businesses, was forced to scramble in recent weeks to line up new funding as it faced mounting liquidity pressure amid upcoming debt maturities and as customers tapped their credit lines.
CIT said in the filing with the Securities and Exchange Commission that the new loan might not provide enough relief to cover the liquidity squeeze.
CIT said it still needs to pay off about $7 billion in debt maturing over the next year, including $1 billion in August. It has launched an offer to repay that $1 billion in maturing debt at a discount.
Shares of CIT tumbled 27 cents, or 21.6 percent, to 98 cents Tuesday.
CIT was forced to turn to bondholders in recent days for help after the government refused to save the company last week.
CIT said late Monday it had reached a deal with key bondholders, including bond manager Pimco, to receive a 2.5-year secured loan facility.
That $3 billion loan comes at a high price — a minimum interest rate of 13 percent, according to the SEC filing.
“That’s an indication of the risk to the lenders,” longtime banking analyst Bert Ely said. “CIT is paying dearly for this credit.”
At the same time it agreed to the loan, CIT launched the cash-offer for $1 billion worth of senior notes due Aug. 17.
It is offering $825 for each $1,000 worth of notes tendered on or before July 31, and $800 for notes tendered between Aug. 1 and Aug. 17. Lenders involved in the bailout deal have agreed to tender all of their Aug. 17 notes, CIT said. The company and the steering committee of bondholders now will work on drawing up a number of debt swap offers designed to alleviate CIT’s debt burden and further shore up the company’s cash position.
Failing to garner enough tender offers for the upcoming debt could force it to file for bankruptcy protection, CIT disclosed in the SEC filing.
Should CIT collapse, some experts fear it would deal a crippling blow to an economy still bleeding hundreds of thousands of jobs a month despite a nearly $800 billion federal stimulus program.
The retail sector would be hit especially hard. CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts say 60 percent of the apparel industry depends on CIT for financing.
CIT received $2.3 billion from the government’s Troubled Asset Relief Program last fall — money that could be lost if CIT files for bankruptcy.
The Federal Reserve put the company through its “stress test” last week and found it faced a $4 billion capital shortfall.