CIT Debt Plunges as Traders Bet Lender Isn’t Too Big to Fail
By Daniel at 9 July, 2009, 4:12 pm
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July 9 (Bloomberg) — CIT Group Inc., the century-old lender to 950,000 businesses, is trading in the bond market as if it may fail.
Since becoming a bank in December to qualify for federal help, CIT has lost all three of its investment-grade ratings. Yields on its bonds are comparable to securities rated on the brink of default on concern CIT won’t get approval to sell U.S.- backed bonds under the Temporary Liquidity Guarantee Program to refinance $10 billion of debt coming due through next year.
“They won’t be able to survive” without cheap funding, said Jason Brady, a managing director at Thornburg Investment Management, which manages $40 billion, including CIT bonds, in Santa Fe, New Mexico. “The fact that their access to TLGP has been delayed so long is a bad sign.”
A failure of CIT, which has almost $76 billion in assets, would be the biggest bank collapse since regulators seized Washington Mutual Inc. in September. The New York-based lender, run by Chief Executive Officer Jeffrey Peek, says it is still discussing its TLGP application with regulators. CIT hasn’t had access to the corporate bond market in more than a year, while the government allowed competitors from General Electric Co. to GMAC Inc. to sell U.S.-backed debt during the worst credit crisis since the Great Depression.
“We don’t have any clear criteria for who’s in and who’s out and which lines of business, like autos, are good, or which are not so good — like the kind of asset-based lending that CIT has done,” said Karen Petrou, managing partner of Washington- based research firm Federal Financial Analytics Inc.
Subprime, Student Loans
CIT, founded in 1908 as Commercial Credit and Investment Co., reported lossestotaling more than $3 billion in the past eight quarters after expanding into subprime mortgages and student loans.
The lender, which says it was the first to offer credit to help consumers nationwide buy Studebaker cars, funds businesses from Dunkin’ Brands Inc. in Canton, Massachusetts, to Eddie Bauer Holdings Inc., the bankrupt clothing chain in Bellevue, Washington. CIT says it’s the third-largest U.S. railcar-leasing firm and the world’s third-biggest aircraft financier.
The U.S. spent, lent or pledged $12.8 trillion through March to revive the economy, according to data compiled by Bloomberg. Insurer American International Group Inc., based in New York, got taxpayer funds in September in a bailout that has swelled to $182.5 billion. New York-based Citigroup Inc., the third-biggest U.S. bank by assets, has received $45 billion from the government.
Buyer Needed?
CIT may have to seek a buyer if the government doesn’t see the company as critical to the economy and withholds access to the TLGP, said Matthew Eagan, investment manager at Loomis Sayles & Co. in Boston…..
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