CIT Group Inc
The board of the lender, which caters to small and mid-sized businesses, was meeting on Thursday to consider a restructuring plan, a third source familiar with the matter said.
Under the terms of a rescue loan CIT received in July, Thursday is the deadline for the company to come up with a restructuring plan agreeable to lenders.
CIT plans to offer its unsecured debt holders two options -- either exchange their debt voluntarily or face a pre-packaged bankruptcy.
If the company goes through a pre-packaged bankruptcy, it would need a debtor-in-possession (DIP) loan to finance it during the process. The company is eyeing a DIP loan of $5 billion to $7 billion, the sources said. No such loan has yet been finalized, they said.
CIT declined to comment. The sources declined to be identified because talks are not public.
CIT shares closed down 15 cents, or 12.4 percent, at $1.06 on the New York Stock Exchange.
Its bonds were mixed. The 7.625 percent bond due 2012 was the most actively traded earlier in the day, rising 1.5 cents to 66 cents on the dollar, according to MarketAxess.
In a regulatory filing on Thursday, CIT said it intends to restructure outside court through an exchange offer, but may have to file for pre-packaged bankruptcy if it was unsuccessful.
If neither of those work, CIT will likely have to file for bankruptcy without an agreed on plan, which may lead to asset liquidations, it said in a U.S. Securities and Exchange Commission filing.
On Tuesday, sources told Reuters that the exchange offer is likely to essentially turn the company over to bondholders.
Debt investors would get some combination of new debt secured by assets and shares in the company. CIT's overall debt levels would shrink.
CIT's longer-term plan is to essentially turn itself into a bank. The company is one of scores of lenders and underwriters that relied on bond markets to fund their operations, only to suffer as the credit crunch has raged for two years.
In the filing, CIT said it expects to seek permission to transfer certain business platforms into its CIT Bank unit within 12 to 18 months after the completion of its restructuring.
It plans to diversify the bank's funding base by adding commercial and retail deposits, it said.
CIT received $2.3 billion in December under the government's Troubled Asset Relief Program (TARP), but federal regulators this year rejected requests by CIT for more help.
For the 12 months ending August 31, 2010, its unsecured debt funding needs are about $7.6 billion. In the four months ending December 31, 2009, the company has unsecured debt maturities of about $1.6 billion, of which $800 million matures on November 1 and 3.
In July, CIT bought some time to restructure with the help of a $3 billion emergency loan from a group of bondholders. That loan imposed the Thursday deadline for a restructuring plan.
(Reporting by Paritosh Bansal, Caroline Humer, Karen Brettell and Dan Wilchins, editing by John Wallace and Carol Bishopric)