"Without access to TLGP, CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings."
FDIC Said to be Unwilling to Back CIT Debt on Risk (Update1)
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By Caroline Salas and Pierre Paulden
July 9 (Bloomberg) -- The Federal Deposit Insurance Corp. is unwilling to give CIT Group Inc. access to its Temporary Liquidity Guarantee Program because the commercial lenderâs credit quality is deteriorating, according to people familiar with the regulatorâs thinking.
The FDIC, which has backed $274 billion in bond sales under the TLGP since Nov. 25, is concerned that guaranteeing CIT debt would put taxpayer money at risk, said the people, who declined to be identified because the application process is private.
The federal agency is continuing talks with CIT about how the lender can strengthen its financial position to get approval, such as by raising capital, said one of the people. CITâs measures to improve its credit quality, such as by transferring assets to its bank, have been insufficient, the person said.
CIT, the century-old lender to 950,000 businesses, became a bank in December to qualify for a government bailout and received $2.33 billion in funds from the U.S. Treasury. The New York-based lender has reported more than $3 billion of losses in the last eight quarters, faces $10 billion of maturing debt through 2010 and hasnât had access to the corporate bond market in more than a year, according to data compiled by Bloomberg.
Without access to TLGP, CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings.
Application âRemains Outstandingâ
CITâs âapplication for participation in TLGP remains outstanding, and we continue to be in active dialogue with the applicable federal regulators,â Curt Ritter, a CIT spokesman, said. He declined to comment on the FDICâs reasons for delaying CITâs application.
Andrew Gray, spokesman for the FDIC in Washington, declined to comment on CITâs pending application.
CIT stock plunged 59 percent this year, underperforming the Russell 1000 Financial Services Index by 50 percentage points. CIT shares, which closed at $1.86 on the New York Stock Exchange, fell 34 cents, or 18 percent, as of 6:27 p.m. in after-hours trading.
The TLGP program opened a channel of funding for financial institutions unable to borrow in U.S. markets after the September collapse of Lehman Brothers Holdings Inc. By paying the FDIC a fee to back their bonds, banks are able to sell debt with top credit ratings. The TLGP expires Oct. 31. Issuers must have applied by June 30.
To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net; Pierre Paulden in New York at ppaulden@bloomberg.net
Last Updated: July 9, 2009 19:00 EDT
FDIC Said to be Unwilling to Back CIT Debt on Risk (Update1)
Share | Email | Print | A A A
By Caroline Salas and Pierre Paulden
July 9 (Bloomberg) -- The Federal Deposit Insurance Corp. is unwilling to give CIT Group Inc. access to its Temporary Liquidity Guarantee Program because the commercial lenderâs credit quality is deteriorating, according to people familiar with the regulatorâs thinking.
The FDIC, which has backed $274 billion in bond sales under the TLGP since Nov. 25, is concerned that guaranteeing CIT debt would put taxpayer money at risk, said the people, who declined to be identified because the application process is private.
The federal agency is continuing talks with CIT about how the lender can strengthen its financial position to get approval, such as by raising capital, said one of the people. CITâs measures to improve its credit quality, such as by transferring assets to its bank, have been insufficient, the person said.
CIT, the century-old lender to 950,000 businesses, became a bank in December to qualify for a government bailout and received $2.33 billion in funds from the U.S. Treasury. The New York-based lender has reported more than $3 billion of losses in the last eight quarters, faces $10 billion of maturing debt through 2010 and hasnât had access to the corporate bond market in more than a year, according to data compiled by Bloomberg.
Without access to TLGP, CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings.
Application âRemains Outstandingâ
CITâs âapplication for participation in TLGP remains outstanding, and we continue to be in active dialogue with the applicable federal regulators,â Curt Ritter, a CIT spokesman, said. He declined to comment on the FDICâs reasons for delaying CITâs application.
Andrew Gray, spokesman for the FDIC in Washington, declined to comment on CITâs pending application.
CIT stock plunged 59 percent this year, underperforming the Russell 1000 Financial Services Index by 50 percentage points. CIT shares, which closed at $1.86 on the New York Stock Exchange, fell 34 cents, or 18 percent, as of 6:27 p.m. in after-hours trading.
The TLGP program opened a channel of funding for financial institutions unable to borrow in U.S. markets after the September collapse of Lehman Brothers Holdings Inc. By paying the FDIC a fee to back their bonds, banks are able to sell debt with top credit ratings. The TLGP expires Oct. 31. Issuers must have applied by June 30.
To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net; Pierre Paulden in New York at ppaulden@bloomberg.net
Last Updated: July 9, 2009 19:00 EDT
