CIT Group: Back from the brink?

Here’s some possibly good news for small business. CIT Group, the struggling lender that’s a big player in factoring and small-business lending and is teetering on bankruptcy, is reported to be negotiating a new credit facility of as much as $10 billion.  That could be a life-saver for the company, which tried unsuccessfully to get a second government bailout recently and has lost more than $5 billion in the past nine quarters, according to Business Week.

Basically, according to the Wall Street Journal, the plan would give bondholders new debt secured by CIT assets, plus a lot of equity in a restructured company. That new debt would mature later than the $3 billion of current debt held by CIT due to mature in the fourth quarter, half of which has to be refinanced or repaid somehow, according to Reuters. If that plan doesn’t fly then CIT might file for Chapter 11, one of the biggest in U.S. history.

If the bank can raise the amount of equity it has in relation to debt, it might convince regulators to lift a cease-and-desist order  preventing it from taking in new deposits.  That, obviously, would be a good thing for the bank.

Also, a report in the New York Post said that hedge fund manager John Paulson might try to merge CIT with IndyMac Federal Bank, the failed mortgage lender. (He is a CIT debt-holder). That would accomplish a few things,  boosting  CIT’s deposits and moving IndyMac into commercial loans.

Obviously, this is all fluid and far from over. But CIT lends to thousands of small and medium-sized businesses.  Let’s hope it works something out.