CIT clinches £1.8 billion rescue

NEW YORK (Reuters) - CIT Group Inc has clinched $3 billion (1.8 billion pounds) of emergency financing from bondholders, keeping the struggling lender out of bankruptcy, a person close to the matter said.

The rescue from several big bondholders, including Pacific Investment Management Co, has been approved by CIT's board and could be announced on Monday, the source said.

A rescue could allow more time for the 101-year-old lender to small and mid-sized businesses to restructure its debt, and preserve the ability of thousands of businesses to obtain cash needed for day-to-day operations.

Yet several analysts and bankers said it might only delay a bankruptcy filing, in light of skittishness among CIT customers and the New York-based company's inability to readily tap capital markets.

"The deal is a negative for bondholders as it does not fix the underlying problem and layers in more secured debt," wrote CreditSights Inc analysts Adam Steer and David Hendler. "Without a viable funding model, we believe CIT may still be at risk of filing for bankruptcy."

CIT spokesman Curt Ritter declined to comment after initial reports of the rescue. He was not available on Monday.

In afternoon trading, CIT shares were up 56 cents, or 80 percent, at $1.26 on the New York Stock Exchange.

HIGH BORROWING COSTS

According to published reports, CIT would pay interest on the rescue financing 10 percentage points above the three-month London Interbank Offered Rate. This equates to an annual rate of about 10.5 percent.