CIT secures $3 billion financing from bondholders

It's a new twist in the financial crisis: A major bank on the verge of a last-minute rescue — only this time the bailout isn't coming from the government. The deal marks the first time since the banking crisis erupted that private investors are stepping in to save a big financial firm without federal help or oversight.

The lifeline for CIT, whose clients include Dunkin' Donuts franchises and clothing maker Eddie Bauer, aims to sustain the company long enough for it to rework its heavy debt load, which includes $7.4 billion due in the first quarter of next year. It does not guarantee CIT will avoid bankruptcy.

CIT said the rescue includes a $3 billion secured term loan with a 2.5-year maturity, which will ensure that its small and midsized business customers continue to have access to credit. Term loan proceeds of $2 billion are committed and available immediately, with an additional $1 billion expected to be committed and available within 10 days.

The short-term financing comes at a high price — an interest rate of about 10.5 percent, said a person close to the negotiations who was not authorized to discuss the matter publicly.

CIT also said it has launched a cash tender offer for its $1 billion worth of outstanding floating rate senior notes due Aug. 17, offering $825 for each $1,000 worth of notes tendered on or before July 31, and $800 for notes tendered between Aug. 1 and Aug. 17. Lenders involved in the bailout deal have agreed to tender all of their Aug. 17 notes, CIT said. The company and the steering committee of bondholders now will work on drawing up a number of debt swap offers designed to alleviate CIT's debt burden and further shore up the company's cash position.

"With today's announcement, our board of directors, management team, advisors, and a steering committee of bondholders, who are lenders under the term loan financing, are now actively focused on a restructuring plan that will better position our company for the long term," said Jeffrey M. Peek, CIT chairman and CEO, in a statement.

New York-based CIT was negotiating with six key bondholders, including bond manager Pimco. Peek was actively involved in the talks, according to a person briefed on the matter.

The deal suggests the appetite for risk in the private sector is increasing, analysts said. It also could provide a framework for other financial rescues if Washington turns off the bailout spigot.

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