Wednesday, September 30, 2009

They warned you.... (CIT)

CIT Group (CIT) shares are off 40% this morning, on news that the company will be saved! Similar to General Motors, a firm can be saved, but its common stock is often left worthless. CIT Group, to its credit, has repeatedly warned that it may need to restructure in bankruptcy court.

The WSJ reported earlier this morning that CIT is in talks with Barclays, Citigroup, and possibly others, to exchange 30-40% of CIT's debt in exchange for new equity. Existing shareholders would likely be left with nothing.

In addition to new equity, the debt exchange would result in new debt but with payback dates further down the line. It will be interesting to see how this deal works out, especially if creditors with different time horizons (some are not scheduled to be paid back for years, so may not be too keen on these other short-term debt holders rushing in and taking over the firm's new equity.)

Yesterday, CIT shares soared on erroneous reports that a deal with Indymac was in the works. With all the bailouts and government-arranged "marriages" we've seen, some people took a flyer on it, and are being crushed today.

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