The ratings of embattled U.S. lender CIT Group will be downgraded to restricted default if it completes its offer to purchase its floating rate notes due in August, Fitch Ratings said on Wednesday.
While the debt purchase may forestall a bankruptcy filing, it will be considered a coercive debt exchange, Fitch said in a statement. Debt exchanges are considered coercive and tantamount to default when bondholders suffer a loss of principal and when there is a strong likelihood of a bankruptcy if the debt purchase was not successful.
CIT, which has been struggling for survival, on Monday won a $3 billion emergency credit line from bondholders and launched a tender offer to repurchase its $1 billion floating rate notes due on Aug. 17 at 80 cents on the dollar, or 82.5 cents for notes tendered before July 31.
Despite receipt of credit facility proceeds and announced recapitalization plans, Fitch believes bankruptcy is still a potential outcome, the rating agency said. Terms of the credit facility are extremely onerous and may limit the company's future financial flexibility, Fitch said.
Fitch downgraded CIT on July 16 to C, signaling it believed a default was imminent or inevitable. A restricted default, or RD rating, would indicate CIT defaulted on a financial obligation but has not filed for bankruptcy or entered into receivership or liquidation, Fitch said.
(Reporting by Dena Aubin)