the bizarre CIT story: CIT Said to Have Spurned $2 Billion Secured GE Loan (Update1)
July 22 (Bloomberg) -- CIT Group Inc., the commercial lender seeking to avoid bankruptcy, rejected a General Electric Co. offer of at least $2 billion in senior secured loans backed by aircraft, four people familiar with the matter said.
CIT spurned the loans from GE’s finance arm, a rival in some lending businesses, over the weekend in favor of $3 billion in loans from a group of bondholders, two of the people said. GE’s offer, while less costly and requiring fewer assets as collateral, wouldn’t have provided cash until July 31 because of a delay in structuring the deal, said two of the people, who didn’t want to be identified because the offer wasn’t public.
By contrast, CIT received $2 billion of the bondholders’ loan July 20 and expects the rest by month’s end. CIT, led by Chief Executive Officer Jeffrey Peek, in a statement this week called that deal the first step in a “comprehensive restructuring” of liabilities that needs bondholder cooperation. Terms include a 5 percent fee, 13 percent interest rate and assets pledged at five times the loan amount as collateral.
“Peek may have felt that the egregious terms he got were the best he could get with certainty,” said Ed Grebeck, the CEO of debt-consulting firm Tempus Advisors in Stamford, Connecticut. “He’s trying to push the crisis down the road.”
GE Loan Offer
The GE loan could have been expanded to include additional funds using other collateral if CIT required it, three of the people said. GE’s offer wouldn’t have presented cash until the end of July because the company would need time to check out CIT’s collateral.
The bondholder loan is secured by assets including 100 percent of the stock of CIT Aerospace International, according to a CIT regulatory filing. The offer from GE likely would have relied on about $4 billion in assets, less than the $8.6 billion for the unit estimated by AirFinance Journal, three of the people said. GE’s plane-leasing arm is part of GE Capital.
The CIT bondholder loan has a rate of 10 percentage points more than the three-month London interbank offered rate, with a 3 percentage-point floor for the borrowing benchmark.
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