CIT Group Inc
The stock of the 101-year-old lender to hundreds of thousands of small and medium-sized businesses was up 16 cents to 57 cents, after CIT lost 75 percent of its market value on Thursday as government talks for financing collapsed and on concerns it would have to file for bankruptcy.
But the Wall Street Journal reported Thursday night that CIT's large bondholders were discussing a plan to exchange $5 billion of debt for equity. The move would be part of plans that would also include CIT raising $2 billion to $3 billion of financing, which would be secured and come from a group of CIT's debtholders, the paper reported.
The paper said the plans would depend on CIT getting government clearance to transfer some assets to its bank.
While the debt for equity exchange would be very dilutive for current shareholders, it could save the company from bankruptcy, said Sameer Gokhale, an analyst at KBW.
If they do that for $5 billion then they will probably strengthen their balance sheet enough to where they might be available to make other sources of financing and maybe assistance from the government, he added.
Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York, said speculation of a buyer for CIT was hurting U.S. Treasuries.
The New York Post reported on Friday that JPMorgan Chase & Co
But Gokhale cooled expectations of an asset sale.
It has some valuable franchises, but if they sell the assets in a distressed situation, they don't even get the par value for the assets. They will have to take losses and those losses will further weaken the balance sheet, so that doesn't seem to be a viable strategy, he said.
They haven't thrown the towel, and they still are trying to work very hard to get some sort of funding, but at the end of the day I still think that there is a very high risk of a bankruptcy event, he added.
CIT and JPMorgan were not immediately available for comment.
(Reporting by Juan Lagorio, Chuck Mikolajczak and Burton Frierson; editing by Steve Orlofsky)