CIT confirms rescue from bondholders

CIT said it received commitment for $2 billion in financing, and that it expected to receive commitments by July 31 for an additional $1 billion. While the financing helps CIT improve its liquidity, the lender to small and midsized businesses is not yet in the clear.

CIT stated in that its estimated funding needs for the fiscal year ending June 2010 total $7 billion of unsecured debt. The company said in order to satisfy its needs, it will need to refinance or retire other debt, but the company also gave no assurance it would be successful doing so.

Eugene White, a professor of economics at Rutgers University in New Brunswick held the current leadership at CIT accountable for the company’s woes.

“Why did CIT get in trouble? They strayed away from their basic business model,” he said. White pointed to CIT’s exposure in the mortgage debacle as an example of that straying.

White said the difficulties CIT suffers call for equally difficult questions to be answered by leadership. “They deviated from a successful business strategy to a higher-risk one. Then they got bailed out by the government for taking more risk,” he said. “You shouldn’t want to reward the management by continuing with that management.”

While CIT’s woes raised concerns about credit being available for small and midsize companies that rely on its resources, White said the issue calls for examination from different angles. “Financial markets are very competitive,” he said. “There are other forms of financing for individual borrowers.”

Word of the deal with bondholders follows CIT’s talks last week with JP Morgan Chase & Co. and Goldman Sachs Group Inc. If CIT crumpled in bankruptcy, small and midsize businesses that rely on its financing could be left in dire straits for working capital.

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CIT had asked for another round of funding from federal resources, but the company said last Wednesday those talks fell through. On Thursday, CIT had said it would look to alternatives to improve liquidity, and that it was in discussions with potential lenders.

Email João-Pierre Ruth at jpruth@njbiz.com