By Reuters
March 20, 2008
CIT Group, the commercial finance company, said Thursday that it was drawing on $7.3 billion of bank lines to help conduct daily operations, a move that highlights the commercial finance company’s difficulty in raising cash to pay off debt.
The cost to insure CIT’s debt with credit default swaps is trading at distressed levels, costing 27 percent of the sum insured as an upfront payment, in addition to annual premiums of half a percentage point, according to broker Phoenix Partners Group. They had cost 24.5 percent upfront before the news Thursday.
This means it would cost $2.70 million in one lump sum to insure $10 million in debt for five years, in addition to annual premiums of $500,000 a year.
Shares of CIT plummeted 35 percent Thursday, extending losses that were high even before the midday announcement. CIT shares have fallen 88 percent since the beginning of June.
The company, which said in February it needed to raise $6 billion and $8 billion in the first two quarters of 2008, said Thursday it was looking at additional financing sources and might sell nonstrategic assets or businesses over the near term.
CIT is one of a legion of finance companies that have had trouble raising money from investors in recent months as markets became increasingly jittery about the extent of credit problems in the financial system.
Thornburg Mortgage Inc., the mortgage lender, said Wednesday that it had to raise nearly $1 billion of capital to keep five lenders at bay and avert a possible bankruptcy filing.
And the investment bank Bear Stearns was forced to sell itself to JPMorgan Chase on Sunday, after experiencing a run on the bank.
Drawing on bank lines is often seen as an emergency action for companies unable to get financing elsewhere.
Source: Reuters
CIT Group Draws on Its Credit Line
