In a last-minute attempt to save the company from bankruptcy, CIT Group secured $3 billion in rescue financing from its bondholders late last night. CIT could not be immediately reached for comment, although an announcement detailing the intricacies of the arrangement is expected to be released later today.
The loan may strengthen the company's financial position as well as assuage the pressure to pay the $1 billion in debt that's due from the company in August.
CIT is the nation's largest commercial lender, providing loans to roughly a million small and mid-size businesses. Last week, CIT received the bad news that the Federal Deposit Insurance Corporation (FDIC) would not provide the company some relief by granting access to its debt guarantee program.
"We have a comprehensive and aggressive strategy to restore stability to the financial system," the Treasury said in a statement. "Even during periods of financial stress, we believe that there is a very high threshold for exceptional government assistance to individual companies." Last Wednesday, CIT issued a brief statement announcing that there was "no appreciable likelihood of additional government support being provided over the near term."
For small businesses with loans from CIT this relief could prevent disaster despite the fact that some customers have already begun drawing on their credit lines, adding to an already mounting pressure onto the embattled company.
Dr. Kim Jones of the Stoney Brook Veterinary Hospital in Lebanon, N.H., took out a $1.3 million loan from CIT in June 2008. "I don't know what it will do to me," she says, "they have to do something, the money has been spent, the money is done."
Unlike the $2.33 billion taxpayer-financed bailout CIT received last December, CIT will likely pay interest rates 10 percentage points above the London Interbank Offered Rate, a benchmark interest rate index, for the bondholders loan.