CIT Group Inc
CIT shares and bonds rose, but the 101-year-old lender reiterated that it could still file for bankruptcy if the offer failed and it did not obtain additional financing.
The company is doing what it can to try to avoid a bankruptcy court, said KBW analyst Sameer Gokhale. It may be the best possible outcome for all stakeholders, including the government with its $2.3 billion TARP investment.
The New York-based lender to thousands of small and mid-sized companies estimates that it lost more than $1.5 billion in the second quarter due to bad loans and writedowns.
CIT's problems stem in part from Chief Executive Jeffrey Peek's decision earlier in the decade to expand into subprime mortgages and student loans.
Concerns about the company's financial health increased even after CIT received $2.33 billion from the government's Troubled Asset Relief Program (TARP) in December.
On Monday, CIT launched a tender offer for $1 billion of notes due in August in the first step of a restructuring plan after the collapse of rescue talks with the U.S. government.
The lender said on Friday that it had increased a premium for bondholders who enter the restructuring plan before July 31 to $50 per $1,000 of principal amount.
Bonds tendered before July 31 will be bought back for $825 per $1,000 face amount, while those tendered later will be bought for $775. Initially, the company had offered to buy back the bonds for $800 per $1,000 face amount, with a $25 premium for those noteholders that tendered them by July 31.
LOAN SHARK RATES
Pretty clearly they are giving an incentive to people to do it sooner rather than later, so there may be some value associated with getting more certainty of completing the transaction sooner rather than later, Gokhale said.
CIT stock was up 13 cents at 87 cents in afternoon trading on the New York Stock Exchange. CIT's floating rate notes due on August 17 rose to 81.5 cents on the dollar, according to MarketAxess, versus 79.38 cents late on Thursday.
The company's debt insurance costs were little changed from late Thursday, at about 46 percent as an upfront cost early on Friday, according to Phoenix Partners Group data.
CIT said its estimated funding needs for the year ending June 30 include $7 billion of unsecured debt. It has about $40 billion of long-term debt, according to CreditSights.
The problem with CIT is that their raw material, which is money, costs them far, far more than their competitors, billionaire investor Warren Buffett said in an interview with Fox Business Network.
You can't pay loan shark rates and compete with people who are getting their money on a government guaranteed basis for practically nothing, he added.
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The New York Federal Reserve Bank has concluded in a stress test that the company needs $4 billion of regulatory capital.
The firm has been trying to get regulators' approval to transfer some assets from the holding company to its bank, an action that could shore up its balance sheet.
CIT has been denied access to a U.S. Federal Deposit Insurance Corp program to sell government-backed debt, and the government declined further assistance, forcing the company to turn to private investors for critical cash.
The firm could sell aviation-finance and rail-finance operations as part of its restructuring plan, the Journal said, citing sources familiar with the matter.
While CIT's collapse would not pose a systemic risk, according to analysts, it could hurt manufacturers' and retailers' financing as they approach the holiday season, worsening the effects of the economic downturn.
There is nothing positive that could happen from CIT going away, said Daniel Hurwitz, chief operating officer of shopping center owner Developers Diversified Realty Corp
They are a huge supplier of capital for not just retailers but also for vendors and if the supply chain of inventory gets interrupted at holiday season, that could have a negative impact on the sector, Hurwitz said.
(Reporting by Juan Lagorio, John Stempel, Walden Siew, and John Parry; Editing by Lisa Von Ahn, Ted Kerr and Matthew Lewis)