CIT secures $3 billion financing from bondholders

Once talks with government officials fell apart, CIT turned to some of its major bondholders for financial help. They struck a deal late Sunday.

Ahead of the deal's confirmation investors sent shares of CIT jumping 55 cents, or 78 percent, to $1.25 in trading Monday.

Federal officials were not involved in the negotiations that led to Sunday's deal, a Treasury official said Monday. He spoke on condition of anonymity because he wasn't authorized to discuss the matter.

The government's hands-off approach marks a major shift in the crisis. In the past 16 months, the government has poured billions into stumbling mega-banks like Citigroup and Bank of America. It's also provided guarantees or guidance on the sales of Bear Stearns, Washington Mutual and Merrill Lynch.

But the biggest U.S. banks still enjoy federal support through borrowing or debt guarantees. So how far the government is willing to go with its hands-off policy is unclear.

"The question is, does it only apply to the small- and medium-sized guys, or does it apply to everyone?" said Simon Johnson, a former chief economist with the International Monetary Fund, now a professor at the Massachusetts Institute of Technology's Sloan School of Management.

Scott Talbott, top lobbyist with the Financial Services Roundtable, which represents CIT and other big financial firms, said the government's seeming pullback from the banking sector was a welcome sign.

"When the government steps in, you disrupt the market," he said. "That was necessary to restore liquidity but distorted the free-market system. Now the exit strategy is becoming clear."

Evercore Partners and Morgan Stanley are CIT's financial advisers and Skadden, Arps, Slate, Meagher & Flom LLP and Wachtell, Lipton, Rosen & Katz are legal counsel in connection with the financing and restructuring plan. Barclays Capital is arranger and administrative agent for the term loan financing.

Morgan Stanley & Co. Incorporated and BofA Merrill Lynch are the dealer managers for the debt swap offer.

CIT has cancelled its earnings release and conference call previously scheduled for Thursday. It will report results for the quarter ended June 30 when it files its 10-Q quarterly report with regulators.

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