CIT Group Inc, in business for 101 years, has won a new lease on life, but it might buy the specialty finance company only a few more months.

The lender to nearly a million small- and mid-sized businesses averted a crisis and bought some time on Monday with a $3 billion emergency loan from some of its major bondholders including Pacific Investment Management Co, or Pimco.

But CIT still has much to accomplish and there is no easy path to recovery -- a fact not lost on the lender, which warned on Tuesday that it could still be forced into bankruptcy.

CIT said on Monday it plans to work with its bondholder committee on a recapitalization plan, which is expected to include a comprehensive series of exchange offers designed to further enhance CIT's liquidity and capital.

Such a plan could see CIT explore a number of avenues -- from asset sales and debt exchanges to trying to diversify the deposit base of its bank and hoping regulators would allow it to use that to fund more of its operations.

But big doubts loom over all the options, experts said.

If you get lucky, and things get better, which isn't necessarily what will happen, then maybe, just maybe CIT will be able to restructure itself, said David Havens, managing director of credit trading for Hexagon Securities.

CIT's estimated funding needs for the year ending June 30, 2010, include $7 billion of unsecured debt, according to the U.S. Securities and Exchange filing.

That is just one of the layers of problems besieging the company. New York-based CIT may also have to find a more reliable funding source than the commercial paper and securitization markets, both frozen from the credit crisis, to survive long-term.

It has to have a restructuring plan that is acceptable to its key bondholders by October 1.


CIT launched a tender offer to buy notes that were coming due next month as the first step in its restructuring plan, which it said was designed to reduce debt and interest expense so that it can improve its balance sheet and capital structure.

The company said it is also looking at potential asset sales to raise capital as part of the plan.

It said in the regulatory filing that it receives inquiries from time to time about other assets such as those related to student lending and other commercial finance or vendor finance.

To diversify its deposit base, CIT said it may also need to establish or buy a retail branch network, start an Internet banking operation or a cash-management network for existing customers of its banking unit.

But CIT acknowledged that many of these alternatives faced hurdles -- from getting a good price for assets to the need for regulatory approvals in some cases.

It said refinancing debt and other commitments will be very difficult given the current market environment.

It means that we are not out of the woods with CIT. The rescue may have been somewhat premature, said Lawrence Glazer, managing partner of Mayflower Advisors. Hopefully this gets worked out, but bankruptcy can't be ruled out.


CIT said it had been counting on its banking unit to become the source of deposit funding and wean itself from the dependence on capital markets as part of a strategy formed in 2008 after discussions with the U.S. Federal Reserve and the Federal Deposit Insurance Corporation.

The plan, however, relied on regulatory approvals, which to the company's surprise were not forthcoming after some initial clearances like the granting of a bank holding company status in December.

As late as April this year, the U.S. Federal Reserve allowed the lender to transfer $5.7 billion of government-guaranteed student loans to CIT Bank.

But the attitude of regulators hardened as CIT's condition worsened. Last week, they denied CIT further help, including granting permission to transfer more assets to its banking unit, leaving the company to raise funds from private sources.

The FDIC also imposed a cease-and-desist order on CIT Bank, which among other things prohibits it from increasing risky brokered deposits beyond the $5.5 billion it already has.

If the company filed for bankruptcy, the FDIC could place CIT Bank into receivership or conservatorship, the lender said.

I don't think they will have enough funding to remain a viable entity through the second half of this year. It is very clear they are in a very stretched situation, said William Sullivan, chief economist at JVB Financial Group.

(Reporting by Paritosh Bansal, Jennifer Ablan, Dena Aubin, Lilla Zuill and John Parry, editing by Matthew Lewis)