a-debt-exchange

By Pierre Paulden Oct. 19 (Bloomberg) — CIT Group Inc. , the 101-year-old commercial lender seeking to avoid collapse, changed the terms of a debt exchange two weeks after proposing bondholders swap $29 billion of securities. CIT “has done very little to meaningfully enhance the offer” to the majority of senior unsecured bondholders of the holding company, said Adam Steer , an analyst at CreditSights Inc. in New York. Under the revised terms, maturities on new notes issued in exchange for existing bonds will be shortened by six months, CIT said Oct. 16. The New York-based company will also boost the amount of equity offered to subordinated debt holders and include notes due after 2018 that previously weren’t part of the exchange offer or reorganization plan that was announced Oct. 1. CIT is seeking to reduce debt by at least $5.7 billion after being locked out of the unsecured debt markets it relies on for funding and posting nine quarters of losses totaling more than $5 billion. At the same time CIT pursues the out-of-court debt swap, it’s also asking bondholders to vote on a prepackaged bankruptcy plan. The changes to the exchange are designed to get the participation of a majority of the subordinated debt bondholders, representing a “sizable chunk” of the threshold that CIT is seeking, Steer said. CreditSights continues to question why holders of longer- dated senior unsecured bonds would prefer the exchange over the prepackaged bankruptcy offer, Steer said. Amended Terms Moody’s Investors Service said Oct. 8 that CIT may need to liquidate if too few investors agree to either the swap or a prepackaged bankruptcy. Five days later, CIT said that Chairman and Chief Executive Officer Jeffrey Peek plans to resign at yearend. Under the amended terms, CIT also would include a “cash sweep mechanism” to accelerate repayment of the new notes; boost the coupon on Series B notes being issued by CIT Delaware Funding to 9 percent from 7 percent; and provide preferred stockholders contingent value rights in the reorganization plan, according to the statement. The exchange offer expires at 11:59 p.m. on Oct. 29, CIT said Oct. 2 in a filing with the U.S. Securities and Exchange Commission. CIT said that the offer to exchange notes due after 2018 will expire Nov. 13. “Even if the exchange offer or the pre-packaged bankruptcy is successful, it doesn’t improve CIT’s chances of being a viable company,” said Brian Charles , a debt analyst at brokerage firm RW Pressprich & Co. in New York. Notes Fall CIT’s $500 million of 4.125 percent notes due Nov. 3 have fallen 12 cents on the dollar to 70 cents since Sept. 30, the day before the exchange was announced, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Under the out-of-court restructuring, bondholders were to receive 70 cents to 90 cents on the dollar in the form of new debt, plus 94 percent of the equity in the company, according to the filing. This excluded most unsecured notes. With the prepackaged bankruptcy plan, bondholders would have received 70 cents on the dollar in the form of new 7 percent notes, plus 83.4 percent of equity in the reorganized company, according to an Oct. 8 report from CRT Capital Group LLC in Stamford, Connecticut. This excludes most unsecured notes maturing after 2018, which are left in place, CRT said. ‘Strong Capital Position’ “A strong capital position and liquidity profile should afford CIT the time and resources required to execute on its broad business restructuring strategy, including refinement of its business model, liquidation or sale of select business portfolios, efficiency enhancements and long term bank-centric funding strategy,” the company said in its amended offering memorandum. CIT, which has $42.8 billion in bonds and loans outstanding, funds about 1 million businesses from Dunkin’ Brands Inc. in Canton, Massachusetts, to Eddie Bauer Holdings Inc., the bankrupt clothing chain in Bellevue, Washington. CIT says it’s the third-largest U.S. railcar-leasing firm and the world’s third-biggest aircraft financier. A collapse would ripple across the “small and medium-sized businesses who rely on the finance company to operate — to pay their vendors, ship goods to their customers and make their payroll,” CIT said in internal documents obtained by Bloomberg News in July that make the case for its importance to the U.S. economy. Rescue Financing CIT turned to bondholders in July for $3 billion in rescue financing after failing to win access to a Federal Deposit Insurance Corp. program to sell U.S.-backed debt. “There is no appreciable likelihood of additional government support being provided over the near term,” CIT said in a statement at the time. The U.S. government committed $2.33 billion in taxpayer funds in December 2008 to keep CIT afloat. Pacific Investment Management Co. and Baupost Group LLC resigned more than a month ago from a steering committee that had to approve the restructuring plan. The remaining creditors on the committee are Centerbridge Partners LP, Oaktree Capital Management LLC, Capital Research & Management Co. and Silver Point Capital LP. CIT may receive a loan of as much as $6 billion from bondholders that helped provide the emergency financing, a person familiar with the matter said this month. The funds are intended to finance a prepackaged bankruptcy if the out-of-court exchange fails to gain enough support, the person said. To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net