CIT Group Inc has clinched a deal for $3 billion of emergency financing from bondholders, keeping the struggling lender out of bankruptcy, and the pact may be announced Monday, a person close to the matter said.
The money could strengthen CIT's finances and allow more time for the 101-year-old lender to small and mid-sized businesses to restructure its debt.
A CIT bankruptcy could have rippled through the economy by making it difficult or impossible for thousands of businesses to obtain financing to run day-to-day operations.
CIT shares were up 68 cents, or 97 percent, to $1.38 in early trade as investors waited for the company to announce the deal.
A rescue financing agreement could preserve the government's $2.33 billion investment in CIT from the Troubled Asset Relief Program. CIT became eligible for such financing when it became a bank holding company in December.
The bondholder group includes Pacific Investment Management Co, a unit of Allianz SE, as well as other top investors. The group is expected to provide financing with a 2 1/2-year term, two people familiar with the matter said.
The sources requested anonymity because the talks are private.
Bankruptcy would have made CIT, with $75.7 billion of reported assets, the largest U.S. financial company to go bankrupt since Lehman Brothers Holdings Inc last September.
The $3 billion financing plan will be backed by CIT's remaining unsecuritized assets, which probably exceed $10 billion, one of the people familiar with the matter said.
CIT spokesman Curt Ritter declined to comment when initial details of the rescue surfaced. He was not available on Monday.
CIT's problems mushroomed 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.
The company has about $40 billion of long-term debt, according to independent research firm CreditSights. About $1.1 billion comes due in August, and $2.5 billion by year-end. CIT has lost close to $3.3 billion since the end of 2007.
After last-ditch rescue talks with the government failed last week, the Obama administration said it was setting high standards for granting aid to companies.
The government's decision surprised Peek, leading him to seek help from private investors, one of the people familiar with the matter said. The financing is part of a larger restructuring, the person said.
Late last week, industry groups including the National Retail Federation, the National Council of Chain Restaurants and the National Council of Textile Organizations urged U.S. Treasury Secretary Timothy Geithner to take action to ensure that CIT remains viable.
(Reporting by Jennifer Ablan, Paritosh Bansal, Michael Erman, Ransdell Pierson and Jonathan Stempel; Editing by Lisa Von Ahn and John Wallace)