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CIT Group, Continued…

Bloomberg reports:

CIT, the 101-year-old commercial lender struggling to retire
$1 billion of debt maturing next month, agreed to pay a 5 percent
fee to the creditors and annual interest of at least 13 percent.
On top of that, the New York-based company pledged assets worth
more than five times the amount of the loan as collateral.”

Obviously they are fighting for their survival, but this just seems ridiculous.  A 5% fee along with interest of 13% backed by assets of a size 5 times the loan amount.  Unless these assets are shaky (which I highly doubt) PIMCO and Centerbridge Partners are taking CIT to the cleaners.  Blood in the water.

Where is the ethical line here?  Shouldn’t the CIT board of directors say that such terms of a loan are not in the company’s or the shareholder’s best interest?  Wouldn’t a bankruptcy filing be a better scenario than providing a risk-free loan with a 5% fee and 13% interest rate?  The CEO Jeffrey Peek even stated that the loan does not solve the funding problems that CIT has.

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