CIT rescue may be win for bondholders behind lifeline

By Dena Aubin and Jennifer Ablan - Analysis

NEW YORK (Reuters) - Big bondholders, expected to provide a $3 billion lifeline to CIT Group, may be the winners in the embattled U.S. lender's latest rescue plan, though it may only delay a bankruptcy filing, analysts said on Monday.

A group of large bondholders including Pacific Investment Management Co (Pimco) agreed late on Sunday to provide the rescue financing to give CIT more time to restructure its debt, sources have said.

CIT is expected to pay a 10.5 percent interest rate for the rescue loan which is yet to be confirmed by the company.

The loan would be a windfall for the bondholders providing the financing but may be an exorbitant cost for the company, and probably more than it charges its own borrowers, said business attorney Jerry Reisman, a partner with Garden City, New York law firm Reisman, Peirez and Reisman.

"This is only an interim financing" and will merely delay a bankruptcy filing as CIT loses business and its loan defaults continue to grow, he said.

Bondholders providing the rescue financing will not only get a good return, but will have their loan secured by some of CIT's best assets, he said.

On Sunday, a source familiar with the matter told Reuters that the $3 billion rescue financing will be backed by CIT's remaining unsecuritized assets which likely exceed $10 billion.

CIT spokesman Curt Ritter declined to comment after initial reports of the rescue. He could not be reached for comment on Monday.