CIT in talks with JPMorgan, Goldman - source
The small business lender turns to financial giants for short-term financing as it looks to avoid bankruptcy.
NEW YORK (Reuters) -- CIT Group Inc. is in talks with JPMorgan Chase & Co. and Goldman Sachs Group Inc. about short-term financing as it looks for ways to avoid bankruptcy, a source close to the company said on Friday, sending the lender's shares and bonds up.
CIT (CIT, Fortune 500) -- a 101-year-old lender that services nearly one million small and mid-sized businesses -- is in search of $2 billion to $3 billion of financing, according to the source, who declined to be identified because the talks were private.
The company is also in talks with bondholders about a debt for equity swap, the source said. However, another source familiar with the negotiations who also declined to be identified told Reuters that many bondholders were pursuing a "debt for new debt" exchange, and that a debt for equity exchange was not a real consideration.
The first source added one potential scenario is also a sale of some assets to raise capital.
Bankruptcy, however, is still possible over the next few days, and CIT is maintaining an ongoing dialogue with regulators about the situation, the first source said. The lender had wanted regulators' permission to transfer assets to its bank unit, but that did not happen, the source said.
"They haven't thrown the towel, and they still are trying to work very hard to get some sort of funding, but at the end of the day I still think that there is a very high risk of a bankruptcy event," said Sameer Gokhale, an analyst at KBW.
Shares were up 48 cents, or 117%, to 89 cents, after losing 75% of their market value on Thursday as government talks for financing collapsed and investors feared the company would have to file for bankruptcy.
The price of CIT's floating-rate notes due in August rose to 66.5 cents on the dollar in busy trading, from about 61 cents late on Thursday, according to MarketAxess.
The New York Post reported Friday that JPMorgan Chase & Co. (JPM, Fortune 500) could acquire CIT's factoring unit, which finances more than $50 billion of wholesale inventory, at a time of the year when the collapse of the lender could disrupt retailers holidays plans.
CIT declined to comment and JPMorgan was not available for comment.
But Gokhale cooled expectations of an asset sale.
"It has some valuable franchises, but if they sell the assets in a distressed situation, they don't even get the par value for the assets. They will have to take losses and those losses will further weaken the balance sheet, so that doesn't seem to be a viable strategy," he said.
The company sought new help even after gaining the status of bank holding company in December so it could draw $2.33 billion of taxpayer money from the Treasury's Troubled Asset Relief Program.
But the Obama administration declined help, saying it had set high standards for granting aid to companies and leaving private investors as the one alternative to avoid collapse.
The impact of CIT's demise would likely pale by comparison with the collapse of investment bank Lehman Brothers Inc. last September, analysts said.
Still, the ripples of a collapse could be widespread and worsen the effects of the economic downturn for some firms.