Report: CIT Group board OKs $3 billion rescue loan

[July 20, 2009]  WASHINGTON (AP) -- CIT Group Inc.'s board approved a deal late Sunday with major bondholders to keep the company out of bankruptcy with a $3 billion rescue loan, the New York Times reported.

The emergency financing is intended to give the ailing company time to restructure some of the billions of dollars in debt payments coming due this year, the Times reported, citing anonymous sources.

CIT representatives could not immediately be reached for comment.

New York-based CIT had been negotiating with key bondholders -- including bond manager Pimco -- in an attempt to avoid a bankruptcy filing. Jeffrey Peek, the company's chairman and chief executive, was actively involved in the talks, according to a person briefed on the matter. The person spoke on condition of anonymity because the talks are confidential.

CIT has been scrambling to raise $2 billion to $4 billion after the federal government refused to bail out the company. Rescue talks with government regulators broke off late Wednesday after days of round-the-clock negotiations.

Under the deal, CIT's main bondholders would give the company $3 billion at an initial rate of 10.5 percent, the Times reported.

A bankruptcy filing would have threatened funding for scores of small businesses across the country. It also would have wiped out $2.3 billion in federal bailout money injected into the company in December.

The lender faces $7.4 billion in debt due in the first quarter of next year. Highlighting its woes, CIT will be removed from the Standard & Poor's 500 index next Friday and replaced with software distributor Red Hat Inc.

CIT had warned that depriving it of more federal aid could imperil about a million corporate borrowers -- from Dunkin' Donuts franchisees to retailer Dillards Inc. But the Obama administration turned down the company's request, showing it's drawing a line on federal rescues for troubled financial firms.

In recent weeks, as the prospect of a CIT bankruptcy filing loomed, industry trade groups increased their pitch to lawmakers to prevent the collapse of CIT, which they say would imperil their small-business members and derail the already fragile economy.

CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts say 60 percent of the apparel industry depends on CIT for financing, so other lenders taking up all the slack would pose a big financial strain.

[Associated Press; By ALAN ZIBEL]

AP Business Writer Stevenson Jacobs contributed to this report from New York.

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