Goldman Sachs Group Inc is set to earn about US$1 billion in the event CIT Group Inc enters bankruptcy or otherwise ends a US$3 billion financing agreement, said a source familiar with the matter who declined to be identified because the payout had yet to be disclosed.
The payout would cover fees from a 20-year agreement signed June 6 last year, regulatory filings showed. Under the deal, CIT agreed to pay Goldman 2.85 percent of the maximum amount lent under the facility, or US$85.5 million annually for the first decade, and then a declining amount after that, the filings showed.
“This would not be a windfall payment,” Goldman Sachs said in a statement yesterday. “The make-whole payment, which was publicly disclosed at the time of the financing, is simply the present value of the spread to be earned over the life of the facility.”
CIT chief executive officer Jeffrey Peek is seeking to modify as much as US$29 billion in debt, asking bondholders to swap unsecured obligations for new secured debt and preferred shares, in an effort to avoid bankruptcy. The company turned to bondholders in July for US$3 billion in rescue financing after failing to win a second US bailout.
CIT is in talks with Goldman to amend the facility, but no agreement has been reached, CIT said in a filing on Friday. The Financial Times reported the payout earlier yesterday, without saying where it got the information.
If the debt exchange fails to win agreement from bondholders, CIT will seek court protection through a pre-packaged bankruptcy, the company said on Thursday. CIT, which finances about 1 million businesses from Dunkin’ Brands Inc to Eddie Bauer Holdings Inc, posted a second-quarter loss of US$1.62 billion as more customers defaulted on loans.
Goldman Sachs provided the credit facility last year after CIT was cut off from the commercial-paper market, its traditional source of funding. The maximum amount of the facility declines by US$300 million each year after the first 10, the filings show.
Goldman Sachs spokesman Michael DuVally declined to comment beyond the company’s statement. An e-mail to CIT spokesman Curt Ritter wasn’t immediately returned.
CIT is boosting its board to 13 members from 10, and replacing some directors who may step down, a regulatory filing said on Friday. A bondholder steering committee will recommend candidates, who must be approved by the Federal Reserve Bank of New York, CIT said.
The plan to expand the board means CIT may be preparing to remove Peek, corporate governance experts said. Peek, 62, joined CIT in 2003 after being denied the top job at Merrill Lynch & Co.
CIT’s board extended Peek’s employment contract last month, keeping him at the helm until at least Sept. 2 next year, a Sept. 4 filing said. Peek earned US$800,000 in base salary last year, and stock and option awards helped bring his total compensation to US$5.4 million, CIT’s proxy statement said.
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