CIT Group Inc is negotiating a new credit facility of up to $10 billion that could help the finance company pay off maturing debt and stave off bankruptcy, people familiar with the situation said.

The details of the facility are still being negotiated, and its size might be substantially smaller than $10 billion, two people familiar with the matter said. The company may forgo the loan altogether if it successfully renegotiates the terms of some of its existing credit lines, the sources said.

The existing credit lines include a $3 billion loan that CIT clinched from bondholders in July and a financing facility from Goldman Sachs.

CIT spokesman Curt Ritter declined to comment.

CIT shares rose 34 cents to $2.01 in afternoon trading, up 20.4 percent to their highest level since July. The company's bonds rallied too.

CIT is struggling to fund itself after losing access to the unsecured corporate bond market. The company has $3 billion of debt maturing in the fourth quarter, according to a quarterly filing in August. About half of that maturing debt is unsecured and must be refinanced or repaid from the company's dwindling cash holdings.

Regulators have put CIT Bank under a cease-and-desist order, preventing the unit from accepting new deposits. That bank was supposed to be a key source of funding for the company in the future.

The bank said in a quarterly filing that it hopes to restructure itself. If it is unsuccessful, it might have to file for bankruptcy, it said.

Analysts said CIT is struggling with real problems that may be difficult to solve even with additional loans in the near term.

You can buy yourself a year of life, or maybe more, but then where are you? The world might get better and you might be able to borrow again in secured and unsecured bond markets, but there's no guarantee that it's going to play out that way, said Shawn Abboud, executive director of credit sales and trading at APS Financial Corp in Austin. Many of CIT's competitors are banks that have much cheaper funding costs.


But some investors in CIT securities are much more bullish on the company's ability to avoid bankruptcy. One debtholder said the company could reduce its debt by exchanging current notes for new securities.

When it has more equity relative to its debt, regulators may lift the cease-and-desist order on its bank, allowing it to gather more deposits. CIT may also be able to sell assets, such as its railcar leasing business, and rely more on secured financing in the future, the debtholder said.

There may be interest in asset sales. Billionaire investor Wilbur Ross told the Reuters Restructuring Summit on Tuesday that he would be interested in buying some CIT businesses. He also said he was interested in expanding his railcar leasing business, a unit that CIT has tried in the past to sell.

CIT shares have rallied in recent weeks, and the cost of protecting its debt against default has dropped, helped by rumors of a new credit. Under the terms of the $3 billion July loan, it must come up with a restructuring plan agreeable to lenders by October 1. That plan will likely include debt exchange offers, the company said in a regulatory filing in August.

Several investors who spoke to Reuters said they expect the company to offer new secured CIT debt to holders of short-dated debt, and to offer equity in the company to holders of longer-term debt. Investors may also get some combination of debt and equity, and perhaps even cash, to encourage them to exchange, debtholders said.

CIT's notes with a 4.25 percent coupon due in February 2010, the fifth most actively traded corporate bond in the U.S. market, rose on Tuesday to 76.5 cents on the dollar, from 74.5 cents on September 25, the last most significant trade, according to MarketAxess. That debt traded at 63.25 cents at the start of the month.

(Reporting by Dan Wilchins and Walden Siew; Additional reporting by Joseph A. Giannone and Chelsea Emery; editing by John Wallace and Matthew Lewis)