Tuesday, September 1, 2009

CIT can't find useful idiots, must delay interest payment (CIT)

AlphaNinja - On the one hand, good for equity investors to shy away from this wreck. On the other hand, the inability to raise equity may doom the equity (what?!). This is a rather complicated financing quibble, but I note it because as equity investors we must watch out for ourselves. In basic terms, CIT is in violation of its agreement with lenders. Contractually, they had to try and sell "certain of our equity" securities before skipping a debt payment. It looks like CIT knew that would be an impossibility. They basically tried to use stock investors as "useful idiots" to satisfy debt requirements, and found no takers.

CIT Group (CIT) shares are down 7% after the company announced today they have hit a "trigger event," or breached a debt covenant, and must delay interest payments on some junior debt due 2067 -->> that's right, people are lending to them through 2067.

In today's filing, the company announces that they must defer interest payments because they could not execute the "APM," or "Alternative Payment Mechanism."

And for those wondering what the hell an "Alternative Payment Mechanism" is, take a look at the 03/16/07 filing for these securities.

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