CIT Group Inc's board signed off on a deal late Sunday for $3 billion in rescue financing from a group of bondholders, in a plan the lender hopes will stave off bankruptcy, a source close to the situation said.
The company, which lends to nearly one million small and mid-sized businesses, is expected to announce the deal before markets open Monday, according to the source, who did not want to be identified because the talks are private.
The bondholder group, which includes Pacific Investment Management Company (Pimco) and some other top CIT holders, is expected to provide the financing with a 2 1/2-year term, two sources said.
The deal reached after negotiations through the weekend gives the lender room to resolve its funding problems amid the financial crisis. Without a deal it faced the prospect of bankruptcy as soon as Monday -- an event that could have worsened the effects of the downturn for some of its clients.
The $3 billion financing plan will be backed by CIT's remaining unsecuritized assets, which likely exceed $10 billion, the second source familiar with the matter said.
The second source also did not want to be identified because the talks are private.
The $3 billion is new money but securitized by all the remaining unsecuritized assets which probably exceed $10 billion, that source said.
Curt Ritter, the company's spokesman, declined to comment when the initial details of the deal were reported. Ritter was not immediately available to confirm board approval.
CIT's problems surfaced two years ago in the wake of Chief Executive Jeffrey Peek's decision earlier in the decade to expand into subprime mortgages and student loans, both potentially highly profitable but fraught with added risk.
CIT has about $40 billion of long-term debt, according to independent research firm CreditSights.
About $1.1 billion of debt will come due in August, followed by about $2.5 billion by the end of the year.
It has lost close to $3.3 billion since the end of 2007, and in a May regulatory filing said it had $10 billion of funding needs to address in the year ending March 31, 2010.
CIT gained a bank holding company status in December so it could draw $2.33 billion of taxpayer money from the Treasury's Troubled Asset Relief Program.
But last-ditch rescue talks with the U.S. government failed last week as the Obama administration declined help, saying it had set high standards for granting aid to companies and leaving private investors as the one alternative to avoid collapse.
Peek, who was initially surprised when the lender did not get government help, led the company's efforts to get the funds from private sources, one of the sources said.
The deal is part of a larger restructuring plan, the source said earlier on Sunday.
Late last week, a group of industry associations, including the National Retail Federation, National Council of Chain Restaurants and the National Council of Textile Organizations, sent U.S. Treasury Secretary Timothy Geithner a letter urging him to take action to ensure CIT's ongoing viability.
On Friday, shares of the company closed up about 71 percent at 70 cents on the New York Stock Exchange.
(Additional reporting by Michael Erman and Ransdell Pierson; Editing by Bernard Orr and Lincoln Feast)