Goldman Sachs: In Talks With CIT On $3 Billion Loan
October 05 2009 - 11:58AM
Dow Jones News
Goldman Sachs Group Inc. (GS) said Monday it is in talks to
potentially amend the terms of a $3 billion loan to embattled CIT
Group Inc. (CIT).
"Goldman Sachs is working with CIT to enable it to continue to
use the facility, which we believe gives it its most attractive
cost of funding," Goldman spokesman Michael Duvally said.
The investment bank is on tap to receive about $1 billion if
troubled commercial lender CIT were to file for bankruptcy.
The investment bank extended $3 billion in rescue funding to CIT
in June 2008, according to regulatory filings. The 20-year contract
calls for CIT to pay Goldman 2.85% of the maximum amount lent,
which would come to about $85.5 million annually for the first 10
years of the agreement. CIT would be required to pay $1 billion if
it were to file for Chapter 11 bankruptcy.
Jeffrey Peek, CIT's chief executive, is attempting to persuade
bondholders with about $31 billion in debt to swap that for new
secured debt worth at least $5.7 billion less and to extend debt
maturities. If enough creditors sign on, this reduction in debt
load will help CIT avoid bankruptcy court, for now. The company
warned in July it may be forced to file for a pre-packaged
bankruptcy after it failed to get additional financial aid from the
government.
The company secured a $3 billion rescue loan from a group of its
six largest bondholders, including Pacific Investment Management
Co., Oaktree Capital, Silver Point Capital, and Centerbridge
Partners, at the end of July.
CIT, a century-old company that is one of the largest lenders to
thousands of small and medium-size businesses, pays roughly 10%
interest on its latest loan. Goldman's loan, made before CIT
acknowledged massive financial problems, charges about 3%
interest.
Duvally said the $1 billion payment the investment bank would
receive in the event of a CIT bankruptcy "would not be a windfall
payment." It instead would reflect the "present value of the spread
to be earned over the life of the facility," Duvally said.
CIT couldn't immediately be reached for comment.
Shares of CIT were up four cents, or 3.4%, to $1.21 in recent
trading on the New York Stock Exchange. Goldman's stock jumped
$4.57, or 2.5%, to $184.18.
-By Joe Bel Bruno, Dow Jones Newswires; 212-416-2469;
joe.belbruno@dowjones.com