* Says failure of note offer could lead to bankruptcy
* Shares fall 21.6 percent, cost to insure debt rises (Updates with financial details, prices)
NEW YORK, July 21 (Reuters) - CIT Group Inc (CIT.N) said it may post a loss exceeding $1.5 billion for the second quarter and could file for bankruptcy protection if bondholders reject a debt restructuring, raising new fears that the lender to some 1 million businesses might fail.
A day after winning $3 billion in emergency financing, CIT said it might still be headed for bankruptcy court if it is unable to get enough support for a tender offer for notes that mature next month.
In late afternoon trading, CIT shares were down 27 cents, or 21.6 percent, at 98 cents, and the cost to insure CIT debt against default increased.
Several analysts and bankers have said the rescue financing might only delay a bankruptcy filing, in light of skittishness among CIT's small and mid-size business customers, and the 101-year-old lender's inability to readily tap capital markets.
"We think every day the odds of bankruptcy are substantially higher," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management. "They are fighting a huge uphill battle, and all the efforts to source temporary funding are having little reception."
Problems at CIT stemmed in part from Chief Executive Jeffrey Peek's decision earlier in the decade to expand into subprime mortgages and student loans. The New York-based lender has lost close to $3.3 billion since the end of 2007.
The U.S. government declined help to CIT, forcing the company to turn to private investors for critical cash.
"A lot of people out there think this could be just a band-aid," said Christopher Munck, a high-yield bond trader at B. Riley & Co in Los Angeles. "These guys aren't out of the woods yet, and I don't think anybody believes they are."
CIT's problems came even after the company in December received $2.33 billion from the government's Troubled Asset Relief Program.
The company has been denied access to a Federal Deposit Insurance Corp program to sell government-backed debt, and said the debt tender offer announced Monday is only a first step to building necessary liquidity for the long term, a process it said could include asset sales.
"Disruptions in the credit markets that began in 2007 ... have materially worsened in the first and second quarters of 2009," CIT said in a regulatory filing.
CIT VS CREDITORS
CIT is tendering for nearly $1 billion of floating-rate senior notes due Aug. 17, offering 82.5 cents on the dollar for bondholders who tender before July 31.
According to MarketAxess, the notes were trading at around 85 cents on the dollar on Tuesday, a sign that bondholders are likely to hold out for a higher price.
CIT said that if it filed for bankruptcy, the FDIC could place its banking unit into receivership or conservatorship, shielding its assets from creditors.
The cost of insuring $10 million of CIT debt against default for five years rose to $4.7 million upfront plus annual payments of $500,000. Late on Monday the upfront payment was $3.914 million.
"This indicates both a high likelihood of default and a market perception that if a credit event occurs, the recovery levels would be low," Hexagon Securities analysts said in a research note.
The company said estimated funding needs for the year ending June 30, 2010, include $7 billion of unsecured debt.
"Existing liquidity for the same period is not sufficient to make the upcoming August 17, 2009, maturity payment ... or otherwise meet the company's twelve-month funding requirements," CIT said.
It also said the FDIC and the Utah State Department of Financial Institutions had barred its banking unit from lending or paying dividends to CIT without regulators' approval.
CIT has about $40 billion of long-term debt, independent research firm CreditSights said.
The lender said the New York Federal Reserve Bank on July 14 completed a preliminary stress test of the company, concluding that it needs $4 billion of regulatory capital, including $2.6 billion of Tier-1 capital.
CIT has been trying to get regulators' approval to transfer some assets from the holding company to its bank, an action that could shore up its balance sheet.
A bankruptcy would make CIT, with $75.7 billion of reported assets, the largest U.S. financial company to go bankrupt since Lehman Brothers Holdings Inc LEHMQ.PK last September. (Reporting by Dena Aubin, Juan Lagorio, John Parry and Jonathan Stempel and Lilla Zuill; Editing by John Wallace)