US CREDIT-CIT may restructure debt if TLGP access fails

By Karen Brettell

NEW YORK, July 9 (Reuters) - CIT Group Inc CIT.N, whose
stock and bonds have been walloped over concerns about the
commercial lender's liquidity, may seek a debt exchange or
asset sale if access to a government-supported lending program
is not successful, analysts said.

Concerns over CIT's liquidity have increased as the
company's application to gain access for funding under the
FDIC's Temporary Liquidity Guarantee Program (TLGP) remains on
hold.

The company, which lends to small and medium-sized
businesses, has run into problems funding itself as its
borrowing costs increased and debt comes due.

CIT's 5.0 percent bond due 2014 traded at 56 cents on the
dollar on Thursday to yield 20.15 percent, according to
MarketAxess.

"The big challenge CIT faces is the $2.1 billion bank
revolver that will come due in the first quarter of 2010," said
Vincent Arscott, analyst at Fitch Ratings in New York.

Without access to the TLGP program, which would give the
company the ability to fund itself at an economic rate, the
company may face problems repaying its impending debt
maturities, analysts said.

And the company's application for the TLGP program is far
from a sure thing.

"The government is under pressure not to continue throw
through money at all institutions, and its hard to argue that
CIT has a systemic impact," said David Havens, analyst at
Hexagon Securities in New York.

A spokesman for CIT didn't return calls.

Analysts at CreditSights view further government support as
"highly unlikely."

CreditSights changed their recommendation on CIT's bonds to
underweight, from marketweight on Wednesday, and said the
company is likely to take negative actions for bondholders,
such as a coercive bond exchange.

In a bond exchange, creditors are offered new debt, cash or
stock at less than the bond's par value.

"With only $3 billion of deposits, CIT is by no means a
major U.S. depository," analysts David Hendler and Adam Steer
said in a report.

"Further, while the company is a major middle market
lender, CIT is not in out view a systemic institutions with a
large knock-on effect in the global capital markets or the
global derivatives markets," they added.

Asset sales would also be an option, though with funding
remaining high relative to historical levels they company may
be challenged to find a buyer willing to pay the price it
wants.

"In normal times the aerospace and rail business would be
saleable, but the question is finding a buyer that would be
willing to buy those assets at a competitive price," said
Fitch's Arscott.

Meanwhile, "a wild card is if clients or customers get
nervous they could pull down their committed lines and that's
another potential drain on liquidity that will need to be dealt
with," he said.

Fitch on Wednesday cut CIT's credit ratings two notches to
BB-minus, three steps below investment grade, and warned that
it would cut the company further if the TLGP application is not
approved.

CIT received a $2.33 billion government investment in the
form of preferred stock in the fourth quarter after it was
approved as a bank holding company.