CIT rushes to secure lending, bankruptcy feared

By John Parry and Juan Lagorio

NEW YORK (Reuters) - CIT Group Inc CIT.N was in discussions on Thursday with potential lenders to secure financing, after the collapse of rescue talks with the government left the company on the brink of bankruptcy.

CIT stocks and bonds plunged as the 101-year-old lender to hundreds of thousands of small- and medium-sized businesses faced a worsening liquidity crunch that some warned could worsen the effects of the economic downturn for some firms.

After markets closed, CIT said in a statement its board of directors and management were evaluating alternatives to improve the company's liquidity, adding the firm was in discussions with potential lenders to secure financing.

As CIT's bonds also sank, around 10 to 15 CIT bondholders with over $500 million in notes of the lender held an emergency conference call on Thursday afternoon to discuss options, according to a source familiar with the matter.

Among the participants were Pacific Investment Management Co, the unit of German insurer Allianz SE (ALVG.DE) led by prominent bond fund manager Bill Gross, the person said.

An asset sale or debt restructuring would provide CIT only temporary relief and bankruptcy was the most likely scenario, analysts at investment bank Sandler O'Neill said.

When asked about CIT, White House spokesman Bill Burton told reporters that President Barack Obama had set high standards for granting aid to companies. "A lot of that had to do with whether or not they could show themselves to be sustainable in the long term," Burton said.

"With these talks ending fruitlessly, we think CIT likely was too stressed for any temporary government solution," analysts at brokerage Stifel Nicolaus said in a research note.