Bankruptcy

CIT's Holdout Problem

By Stephen Lubben

So today word comes that CIT's bondholder-provided $3 billion of new financing will not solve its liquidity problems. That's not really surprising, given that CIT has $10 billion in debt maturing through the start of next year.

The more pressing issue is $1 billion of debt that comes due next month. CIT reportedly plans to offer the holders 83.5 if they tender now, and 80 if they tender later. They want to achieve a 90% acceptance rate.

You really could not ask for a better illustration of why out-of-court exchange offers so often fail. Obviously the best place to be is among the 10% of CIT bondholders who don't tender, because CIT will then be contractually bound to pay 100 in August. The problem being that if the 10% swells to 25% -- because everyone has the same bright idea -- the entire exchange offer will fail and CIT will end up in chapter 11.

And then there is the issue of those folks who take 82.5, only to find CIT in chapter 11 this winter. The other $9 billion of debt might want to have a word with them, especially if the filing comes within 90 days of the tender offer.

Full post as published by Credit Slips on July 21, 2009 (boomark / email).