CIT talks to bondholders; bankruptcy still feared

By Paritosh Bansal and Jennifer Ablan

NEW YORK (Reuters) - CIT Group Inc is in talks with a group of bondholders for $2 billion to $3 billion in rescue financing as it tries hard to avoid bankruptcy, a source close to the company said late on Friday.

Bankruptcy is possible if these talks fail, and CIT, a 101-year-old lender that services nearly one million small- and mid-sized businesses, is also exploring the possibility of getting debtor-in-possession (DIP) financing, the source said.

The focus of talks turned to the bondholders after earlier negotiations with JPMorgan Chase & Co and Goldman Sachs Group Inc about short-term financing out of court did not result in a deal, the source said.

JPMorgan and Goldman, along with Barclays PLC and Morgan Stanley, which is also advising the company, might still take part in a DIP financing should the lender go that route, the source said.

CIT's bondholders were going to hold another conference call on Saturday, a source in the lender's bondholder group said.

The source in the bondholders' group said earlier on Friday that many bondholders were pursuing a "debt for new debt" exchange and that a debt for equity exchange was not a real consideration.

"They haven't thrown the towel, and they still are trying to work very hard to get some sort of funding, but at the end of the day I still think that there is a very high risk of a bankruptcy event," said Sameer Gokhale, an analyst at KBW.

Earlier on Friday, the source close to the company said one potential scenario was a sale of some assets to raise capital. The lender had wanted regulators' permission to transfer certain assets to its bank unit, but that did not happen.