Treasuries turned lower and rates higher as the short end outperformed to move the curve steeper by 6.5 bps to +265.5, the steepest it has been since June 4.
CIT Grouped staved off bankruptcy this weekend by securing $3 billion in financing from existing bondholders including PIMCO. Many of the details are not yet public because some specifics have yet to be hammered out, but the cost of the financing is rumored to be 1000 bps over three-month Libor, (50.5 bps as of this morning), and may require CIT to post specific collateral in exchange for the loan, according to The Wall Street Journal. The deal, expected to be officially announced later today is more of a temporary band aid than a cure all. It does solve CIT’s short term liquidity problems, but still leans on some sort of debt restructuring in the future.
A group of outside lenders, including JP Morgan, were in talks with CIT Friday to provide debtor in possession financing, a form of financing for companies wishing to maintain operations during bankruptcy protection. To see CIT’s situation deteriorate so far as to take steps to negotiate that kind of financing, but instead emerge with a plan that gives Cit the chance to restructure outside of Chapter 11 is a decent sign. CIT’s chances of restructuring existing debt also improves as current bondholders put more on the line to protect their existing stake. However, over 10% for short term financing is very expensive and details the risk that existing lenders see with the deal. The longer CIT takes to restructure its debt load the more penalizing that rate will be.
Cliff J. Reynolds Jr., Investment Analyst
CIT Grouped staved off bankruptcy this weekend by securing $3 billion in financing from existing bondholders including PIMCO. Many of the details are not yet public because some specifics have yet to be hammered out, but the cost of the financing is rumored to be 1000 bps over three-month Libor, (50.5 bps as of this morning), and may require CIT to post specific collateral in exchange for the loan, according to The Wall Street Journal. The deal, expected to be officially announced later today is more of a temporary band aid than a cure all. It does solve CIT’s short term liquidity problems, but still leans on some sort of debt restructuring in the future.
A group of outside lenders, including JP Morgan, were in talks with CIT Friday to provide debtor in possession financing, a form of financing for companies wishing to maintain operations during bankruptcy protection. To see CIT’s situation deteriorate so far as to take steps to negotiate that kind of financing, but instead emerge with a plan that gives Cit the chance to restructure outside of Chapter 11 is a decent sign. CIT’s chances of restructuring existing debt also improves as current bondholders put more on the line to protect their existing stake. However, over 10% for short term financing is very expensive and details the risk that existing lenders see with the deal. The longer CIT takes to restructure its debt load the more penalizing that rate will be.
Cliff J. Reynolds Jr., Investment Analyst
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