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Tue, Jul 28, 2009 - Page 10 News List

CIT may struggle to find buyers for rail, aircraft units

CASH CRUNCH: CIT is also waiting to see if holders of US$1 billion in bonds maturing next month would agree to convert part of the debt to equity

BLOOMBERG

CIT Group Inc, trying to avoid collapse by selling assets, may get lowball bids for railroad and aircraft leasing units as competing sellers, the recession and the threat of bankruptcy drive down prices.

Chief executive officer Jeffrey Peek is weighing the sale of the businesses, a person familiar with the deliberations said, in a market where General Electric Co and American International Group Inc have failed so far to find buyers for rail and aircraft subsidiaries. New York-based CIT said on July 20 it may seek protection from creditors, making it unlikely bids will equal an estimated US$2 billion book value, analysts said.

“Buyers might feel CIT is a distressed seller, and as a result of that, they may not want to pay a fair price,” said Sameer Gokhale, a KBW Inc analyst in New York.

Such sales would cut deeper into CIT’s depleted capital, he said.

Analysts and investors speculated Warren Buffett’s Berkshire Hathaway Inc and Leucadia National Corp are potential buyers. CIT rebuffed each firm’s bids for some businesses earlier this year, the Wall Street Journal reported last week. CIT declined to comment.

CIT, a 101-year-old lender, is aiming to relieve a cash crunch and gain time to devise a permanent rescue. Peek, 62, obtained US$2 billion from bondholders and is in the process of adding another US$1 billion in financing as he waits to see whether owners of US$1 billion in bonds due to mature next month will agree to take a loss. If they do, CIT may ask bondholders to convert some of their debt to equity, a person familiar with the matter said.

Showing that investors made sacrifices to put CIT on sounder footing may help persuade regulators to approve moving some businesses into CIT’s banking unit, where they could be funded with deposits instead of bonds, said the person, who declined to be identified because CIT’s plans are not public.

The leasing units may be put up for sale because US officials likely will not approve the transfer of businesses that deal in airplanes and railcars into a regulated bank, the person said. CIT’s factoring unit, which lends to manufacturers, and the trade financing unit could probably be shifted into the bank, the person said. GMAC Inc and Wells Fargo & Co are among the banks that have factoring businesses.

CIT received US$2.33 billion from the Treasury’s bank rescue fund last year. Efforts to get more US help collapsed on July 15 after regulators, including Federal Deposit Insurance Corp Chairman Sheila Bair, became concerned that CIT’s worsening prospects would put more taxpayer money in jeopardy, Bloomberg News reported.

Asset sales may not occur until debt holders restructure the company and regulators can see a viable capital plan, another person familiar with the matter said. CIT is trying to determine how much of the remaining unsecured debt can be swapped into equity to improve the company’s financial health, the person said.

Bidders may hold back until a rescue plan is in place because any deals they make could be wiped out by a bankruptcy court, said Scott Peltz, managing director of corporate restructuring in the Chicago office of RSM McGladrey. To protect creditors, judges can undo sales agreements struck in the weeks before a court filing, which makes buyers wary, Peltz said.

CIT’s railcar unit has attracted the most interest from potential bidders, one of the people said.

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