RPT-CIT in talks with bondholders as bankruptcy looms

CIT Group Inc (CIT.N) was in talks with a bondholder group on Saturday, as the lender tried to hammer out a rescue financing deal before markets opened and avoid bankruptcy, a source close to the situation said.

Talks with the bondholder group, advised by investment bank Houlihan Lokey, for a $2 billion to $3 billion financing were expected to continue into Sunday with the aim of announcing a deal by Monday morning, the source said.

If a deal is not reached, the 101-year-old lender that services nearly one million small- and mid-sized businesses could file for bankruptcy protection as soon as Monday, according to the source, who did not want to be identified because talks are private.

Talks are also going on a parallel track for debtor-in-possession (DIP) financing if the lender has to file for bankruptcy, the source said.

JPMorgan Chase & Co (JPM.N), Goldman Sachs Group Inc (GS.N), Barclays PLC (BARC.L) and Morgan Stanley (MS.N), which is also advising the company, might take part in a DIP financing, the source said.

CIT spokesman Curt Ritter declined to comment.

The ripples from a potential CIT collapse could be widespread and worsen the effects of the economic downturn for some firms.

In one early sign, an Alabama hardware supplier filed for bankruptcy blaming the CIT situation for its woes.

Moore-Handley Inc (MHCO.PK) said in court papers filed Friday that it was forced to seek bankruptcy protection "due to difficulties accessing funds" under their financing arrangements with CIT. [ID:nN18474850]

Still, the impact of CIT's demise would likely pale by comparison with the collapse of investment bank Lehman Brothers (LEHMQ.PK) last September, analysts said.

CIT gained a bank holding company status in December so it could draw $2.33 billion of taxpayer money from the U.S. Treasury Department's Troubled Asset Relief Program. link......