CIT Group Inc. and the Federal Reserve announced Thursday an agreement which gives the central bank greater oversight of the troubled commercial lender.
The agreement calls for CIT to report to the Federal Reserve Bank of New York by Aug. 28 its plans for maintaining sufficient capital and to come up within 75 days with a business plan that includes budgets for the remainder of this year and 2010.
CIT must give the New York Fed a written plan that among other things details the company's current and future capital requirements and how it will meet them. It also must spell out how its capital raising plans will affect its projected earnings.
The agreement also calls for CIT to provide by Aug. 28 a plan for improving the management of its liquidity. This part of the agreement is designed to prevent the cash shortfall that the lender is currently trying to resolve and that has raised the possibility that it will need to file for bankruptcy court protection.
The business plan must spell out how the company will improve its overall financial condition. Besides budgets, it calls for a description of any asset sales or restructuring that CIT may be planning to strengthen its balance sheet.
The agreement also requires the government to provide written approval of any dividends, distributions, stock purchases or taking on of debt by CIT.
The agreement was announced the same day that CIT said it had adopted a shareholder rights plan that discourages any person or group from taking a stake of 5 percent or more in the company. While such plans traditionally are used to thwart hostile takeovers, CIT said it is implementing the plan to preserve its tax benefits, or its ability to use net operating losses to lower its tax bill.
New York-based CIT, one of the largest U.S. lenders to small and midsize businesses, has been facing a worsening liquidity crisis as its customers draw down credit lines in the fear that they might disappear. The company has been working to avoid bankruptcy, and on Tuesday it delayed filing its quarterly report because of ongoing restructuring efforts. That news sent CIT shares down nearly 19 percent.
In July, CIT received an emergency $3 billion loan from some of its largest bondholders. Last week, the company said it had drawn down that loan and suspended preferred dividends.
CIT also reaffirmed last week that it has received enough offers to complete a debt repurchase program that it launched last month. The company said that almost 65 percent of $1 billion in bonds due Aug. 17 had been tendered for repurchase. The company needed 58 percent of the debt to be tendered for repurchase to complete the deal. The tender offer expires Friday.
CIT Group has warned that if it doesn't complete the tender offer it might have to file for bankruptcy protection.
CIT's stock rose 15 cents, or 11.7 percent, to $1.43 in afternoon trading. The stock has ranged from 31 cents to $13 over the past year.
No comments:
Post a Comment