Wednesday, July 22, 2009

CIT Update

CIT did obtain a loan from its bondholders after the government refused to step in. However, the terms of that loan make me think their prospects are bleak and that they are still very likely to declare bankruptcy. A Bloomberg headline said the interest rate on the loan was more than 25 times the LIBOR rate. From that story:

"“This is called Don Corleone financing,” Egan said, referring to the patriarch in the organized-crime family depicted in the 1972 film, “The Godfather.” “You can’t lose money on this deal.”

Outside of the “urban underworld,” Egan, 52, said he couldn’t recall seeing a loan backed by as much collateral that paid interest rates so high. “These terms would make a pawn- shop operator blush.”

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