Creditflux Newsletter

With various reports claiming that the US commercial lending giant CIT is looking to an exchange offer to eliminate debt followed by a potential pre-packaged bankruptcy, CreditSights analysts believe that CIT will need to restructure its balance sheet in order to avoid bankruptcy, but has the time (although limited) to do so and will not need an 11th-hour rescue.

CIT’s $3 billion secured facility will suffer an event of default today if it does not finalise its restructuring plan. Analysts note that the company has until November, when CIT has $821 million of debt maturing between the 1^st and 15^th, to complete the exchange offer. Long-dated bonds could end up taking a 40% to 54% haircut in the event of an exchange offer, analysts said.

CreditSights analysts estimate that, of its total debt of approximately $30.5 billion, the company will aim to exchange $22.7 billion. This is because $4.9 billion is scheduled to mature in the next 12 months, and an exchange offer will be difficult to offer to retail investors, who hold $3.2 billion in retail notes.

However, despite all its efforts, it remains questionable as to whether CIT will be able to turn around its business to one meriting an investment grade rating. Rating agencies will probably remain cautious of CIT going forward. Furthermore, a haircut that is below the expected recovery in a bankruptcy scenario will be difficult for bondholders to swallow, and the likelihood of CIT filing for bankruptcy remains plausible.