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  In following the CIT story in the media, I really wonder what makes anyone feel as if this company was actually rescued. It burned through 2.3 billion US dollars of federal bailout money in less than two quarters, is taking a $1.5 billion loss this quarter, has $10 billion of debt coming due, both the macro conditions that spawned its problems and its credit portfolio are still deteriorating. It then gets emergency financing from existing bondholders of $3 billion (which it is subsequently losing in real time due to operating and credit losses as well as near term debt rollover). To add misery to pain, the debt financing is at more than 25 times LIBOR, where the debt it is replacing is barely LIBOR plus a few basis points. Give a man dying of alcohol poisoning a shot of overproof rum and consider him saved!!! So, the company doesn't file for bankruptcy this month, but will be forced to file next month, and will have that much more debt to default on.

From Bloomberg: CIT Hit With Interest Rate More Than 25 Times Libor in Pimco-Led Rescue

Pacific Investment Management Co., Centerbridge Partners LP and the four other bondholders that put up $2 billion in financing for CIT Group Inc. made an instant $100 million on an investment analysts say is almost risk free.

CIT, the 101-year-old commercial lender struggling to retire $1 billion of debt maturing next month, agreed to pay a 5 percent fee to the creditors and annual interest of at least 13 percent. On top of that, the New York-based company pledged assets worth more than five times the amount of the loan as collateral.

"The terms are egregious," said Dwayne Moyers, the chief investment officer at Fort Worth, Texas-based SMH Capital Advisors, which oversees $1.4 billion, including more than $70 million of CIT bonds. "They ripped the faces off everyone with these terms." Ripped the faces off???!!! What??? This is anus expansion to the nth Degree!

CIT, led by Chairman and Chief Executive Officer Jeffrey Peek, said in a regulatory filing yesterday that the loan doesn't solve the funding challenges and it may be forced to seek bankruptcy protection unless holders of $1 billion in floating- rate notes due Aug. 17 accept 82.5 cents on the dollar for the debt.

CIT, led by Chairman and Chief Executive Officer Jeffrey Peek, said in a regulatory filing yesterday that the loan doesn't solve the funding challenges and it may be forced to seek bankruptcy protection unless holders of $1 billion in floating- rate notes due Aug. 17 accept 82.5 cents on the dollar for the debt.

The securities closed yesterday at 85.25 cents, down 2.25 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. CIT shares tumbled 22 percent in New York Stock Exchange trading yesterday.

"The board of directors believed it was in the best interest for all stakeholders," Curt Ritter, a CIT spokesman, said of the financing. He declined to comment on the terms of the loan. Sure, all stakeholders in PIMPco  (misspelling purposely executed).

CIT rejected over the weekend a General Electric Co. offer of at least $2 billion in loans backed by aircraft, four people familiar with the matter said. While less costly and requiring less collateral than the loans from bondholders, funds wouldn't have been available until July 31, said two of the people, who didn't want to be identified because the offer wasn't public. They were so desperate for cash that they couldn't wait one week for funding! Wow! This type of hard money, subprime lending was supposed to be pooh poohed by the administration, right?

...

Bondholders made $2 billion available immediately and promised another $1 billion by the end of the month. The group received a 5 percent commitment fee on the 2 ½ year loan, amounting to $100 million on the $2 billion already provided. They will receive a 1 percent annual payment on the amount that's not drawn upon, the company said.

The book value of the collateral must be more than five times the amount of the loan and the so-called fair value must be more than triple the debt, the filing said. If CIT wants to retire the loan early, it must pay a 2 percent exit fee in addition to a prepayment premium of 6.5 percent on the amount it wants to reduce, the filing said. The 6.5 percent will decline to zero over 18 months.

Interest will be set at 10 percentage points more than the London interbank offered rate, which will have a floor of 3 percent. Three-month Libor was set at 0.503 percent yesterday.

‘Don Corleone Financing'

Even if CIT fails, the bondholder group will probably make money because of the collateral, according to Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. The lenders have "virtually 100 percent assurance" they'd be able to recoup all their money in a bankruptcy, said Sameer Gokhale, an analyst with Keefe Bruyette & Woods Inc. in New York.

"This is called Don Corleone financing," Egan said, referring to the patriarch in the organized-crime family depicted in the 1972 film, "The Godfather." "You can't lose money on this deal." Actually, even Don Corleone wouldn't have dug this deep. Maybe Michael Corleone, but do you remember what happened to that hot head?

Outside of the "urban underworld," Egan, 52, said he couldn't recall seeing a loan backed by as much collateral that paid interest rates so high. "These terms would make a pawn-shop operator blush." Pawnshop operator. Stop beating around the bush. CIT got robbed at economic gunpoint, plain and simple.

Bankruptcy loans arranged this year have an average interest rate of 7.25 percentage points more than Libor, compared with 5.3 percentage points in 2008, Bank of America Merrill Lynch analysts led by Jeffrey Rosenberg wrote in a report last month. So-called debtor-in-possession loans never exceeded 4 percent over Libor before that, they said. Sans the government bailout and intervention, this is the market at work. Hey, the taxpayer could have made this extremely lucrative deal instead of PIMPco and company. If this truly is the market at work, then those terms should make blatantly clear to everyone that the market sees things much gloomier than the media and Bernanke.