Lender secures financial lifeline

NEW YORK – Commercial lender CIT Group Inc. confirmed late Monday that it has secured a $3 billion bailout from its bondholders, saving the company from filing for bankruptcy protection.

It’s a new twist in the financial crisis: A major bank on the verge of a last-minute rescue – only this time the bailout isn’t coming from the government. The deal marks the first time since the banking crisis erupted that private investors are stepping in to save a big financial firm without federal help or oversight.

The lifeline for CIT, whose clients include Dunkin’ Donuts franchises and clothing maker Eddie Bauer, aims to sustain the company long enough for it to restructure its heavy debt load, which includes $7.4 billion due in the first quarter of next year. It does not guarantee CIT will avoid bankruptcy.

CIT said the rescue includes a $3 billion secured term loan with a 2.5-year maturity, which will ensure that its small and midsize business customers continue to have access to credit. Term loan proceeds of $2 billion are committed and available immediately, with an additional $1 billion expected to be committed and available within 10 days.

The short-term financing comes at a high price – an interest rate of about 10.5 percent, said a person close to the negotiations who was not authorized to discuss the matter publicly.

“With today’s announcement, our board of directors, management team, advisors, and a steering committee of bondholders, who are lenders under the term loan financing, are now actively focused on a restructuring plan that will better position our company for the long term,” Jeffrey M. Peek, CIT chairman and CEO, said in a statement.

The negotiations’ success, along with robust earnings reports last week by several big banks, may raise hopes that private capital can start flowing again into the beaten-down banking industry, analysts said.

“You’ve got private money coming in and essentially giving a vote of confidence” in banks’ future profitability, said Vincent Reinhart, former director of the Federal Reserve’s monetary affairs division. “It’s encouraging.”

The retail sector would have been hit especially hard. CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts say 60 percent of the apparel industry depends on CIT for financing.

“If CIT had gone under, that would have left a huge hole in the supply chain,” said Craig Shearman, a spokesman for the National Retail Federation, one of the trade groups that had urged the government to prevent CIT’s collapse.