CreditSights Inc, an independent debt research firm, recommends CIT Group (NYSE:CIT) bondholders reject the company’s offer to buy back an outstanding debt due next month at a discount because the commercial lender’s bankruptcy threat is “hollow.”
Yesterday (July 21) CIT filed an 8k filing with the SEC. In that filing they talked about the company’s liquidity position, regulatory and cash restrictions, and the cash tender offer to existing bondholders. CIT, which announced a $3 billion rescue financing from its bondholders this week, has asked holders of the $1 billion of floating-rate notes maturing on Aug. 17 to swap their claims for 82.5 cents on the dollar (the debt was trading at 60 cents on the dollar yesterday). The company is offering to purchase its August notes for $800 for each $1,000 principal amount of outstanding August 17 notes.
CIT said in the filing it may need to file for bankruptcy protection if it’s unable to tender for notes maturing next month. The New York-based lender also said it needs at least 90% of the noteholders to participate.
“It is our understanding that the creditors that make up the lending group that made the term loan own a sizeable portion of the company’s near-term maturities and further benefit if CIT remains out of bankruptcy due to the high interest rate on the loan,” Adam Steer, David Hendler, Pri de Silva and Jesse Rosenthal, analysts at…CreditSights, wrote in a report dated [July 21]. [Bloomberg]
The loan has a two and a half year maturity and bears interest at LIBOR plus 10 percentage points, with a 3% LIBOR floor, payable monthly. Three-month Libor was set at 0.502% today.
Creditsights Inc. analysts pose in our view a logical question: “why would these bondholders push CIT into bankruptcy if it did not receive the requisite tender amount when it is to their benefit that CIT remains a going concern?”
The independent debt research firm says it doesn’t see a reasonable answer to this question, therefore recommends bondholders reject the tender offer.