UPDATE: CIT Announces Amended Restructuring Plan

Negotiations between CIT Group (CIT), the troubled commercial lender, and a steering committee of bondholders and some aggrieved investors went down to the 11th hour before the company announced a series of amendments to a sweeping debt-exchange and a prepackaged bankruptcy plan.

The amended terms of the restructuring plan include, among others: a comprehensive cash sweep mechanism to accelerate the repayment of the new notes; the shortening of maturities by six months for all new notes and junior credit facilities; an increased amount of equity offered to subordinated debt holders reflecting agreements with holders of the majority of its senior and subordinated debt; the inclusion of the notes maturing after 2018 that had previously not been solicited as part of the exchange offer or plan of reorganization; an increase in the coupon on Series B Notes, to 9% from 7%, being issued by CIT Delaware Funding; and provided preferred stock holders contingent value rights in the plan of reorganization, and modified the allocation of common stock in the recapitalization after the exchange offers, as part of an agreement with the United States Department of Treasury.

The changes were announced in a statement released about 40 minutes before the midnight deadline. The amendments have been approved by CIT's Board of Directors and the bondholder steering committee.

The aim of the debt exchange, announced Oct. 1, is to get holders of about $31 billion in bonds to cut this debt by at least $5.7 billion and to extend the debt maturities. At the same time, CIT is asking bondholders to vote on a prepackaged bankruptcy plan.

Under the exchange, owners of CIT's bonds would get new secured debt worth as much as 90 cents on the dollar if they currently own bonds that mature this year, but would end up with less new debt and more equity if they own bonds maturing later.

At least two groups of investors were pushing for the company to improve the terms of its debt exchange and what they had been offered in a bankruptcy. Some holders of CIT's longer-dated subordinated bonds were pressing for more equity or a contingent variable payment, to be made depending on how the company performs after restructuring.

Also, holders of bonds issued by Delaware Funding, the Canadian unit of CIT were pushing for better terms in a bankruptcy.

Under the terms of these bonds, owners are entitled to recover money from the U.S.-based parent company as well as from Canadian assets and could get close to 100 cents on the dollar if CIT files for bankruptcy protection.

Typos in the original offering memorandum, which came to light late Thursday night, had threatened to stymie negotiations with owners of CIT's longer-dated junior subordinated bonds. One of the mistakes under discussion concerned how much equity in the restructured entity owners of CIT's 6.10% junior subordinated notes due March 15, 2067, would receive in the restructured entity. The sticking point was how much equity was offered to holders of the junior subordinated bonds in the first place because there was a discrepancy of one-tenth of a percentage point in the offer documents.

CIT, one of the largest lenders to thousands of small and medium-size businesses, historically has relied on the capital markets--bonds and short-term debt called commercial paper--for its funding. The credit freeze, however, shut out CIT and other lenders from these markets and CIT has been battles to restructure its debt ever since and stave off bankruptcy.

Investors have until 11:59 p.m. EDT on Oct. 29 to tender their bonds under the restructuring plan that was orchestrated by some members of the bondholders' steering committee--Oaktree Capital Management, Centerbridge Partners and Capital Research & Management--in consultation with CIT management. The additional notes maturing after 2018 have an early acceptance date of Oct. 29, 2009 and expiration date of Nov. 13, 2009.

CIT shares closed down 5.08% at $1.12.

-By Kate Haywood, Dow Jones Newswires; 212-416-2218; [e-mail]