CIT trading at default levels as it counts exchange votes

With CIT still counting votes on its exchange offer, which expired last night, five year credit default swaps on the commercial lender are now quoted at around 39 points upfront. Dealers say the market is now pricing in 100% default probability on the name, with short-dated bonds quoted in the 58-59 range and recovery locks at 59.5.

CIT is reportedly counting through more than 150,000 investor votes on the exchange proposal. Fears are that without the success of the exchange, the company could file for bankruptcy as early as this weekend, wiping out much of the $2.3 billion stake held by US taxpayers. The firm has two bond issuances due to mature, on 1 November and 3 November, that total $800 million.

Meanwhile, Goldman Sachs is set to cut the rescue loan it arranged for CIT by $875 million to $2.125 billion. CIT is paying a $285 million fee to Goldman for reducing the loan, as well as posting an initial $250 million in collateral, according to a filing. Goldman, in return, has agreed to keep its line open even if CIT does file for bankruptcy.

On Wednesday CIT announced it had expanded its $3 billion senior secured credit facility by another $4.5 billion. This new tranche, agreed by an array of lenders including company bondholders, is currently quoted around 99½/100¼ by dealers.

CIT Group has about $55 billion of bonds and loans outstanding. There is an estimated $54 billion of gross notional CDS outstanding worldwide.