New York City Late Sunday night, directors of the CIT Group approved a deal for a $3 billion emergency loan with some of the bank’s major bondholders to help prevent the lender’s fall into bankruptcy.
The deal, according to published reports, will buy CIT time to restructure its business model and reduce debt load. The company had planned to file for bankruptcy protection as early as Monday afternoon if no source of capital monies could be found.
Under the terms of the deal, CIT would receive $3 billion from some of its main bondholders. The initial rate is 10.5% and was arranged by Barclays Capital.
Because CIT is a major lender to mid-size and smaller businesses and it dominates the market for factoring, retailers have watched the story unfold with great concern. Were CIT to fail, the company would become the biggest casualty in the financial sector since Lehman Brothers’ collapse last fall.
CIT had been trying to reach a deal with the federal government for emergency funding before talks broke down last week. CIT had warned that depriving it of more federal aid could imperil about a million corporate borrowers -- from Dunkin' Donuts franchisees to Dillard’s. But the Obama administration turned down the company's request, sending a message that it is drawing a line on federal rescues for troubled financial firms.