Shares in CIT, the US small-business lender, fell 75 per cent on Thursday after the failure of government bail-out talks prompted fears of a bankruptcy filing.

The company was scrambling on Thursday to obtain last-minute financing commitments from lenders that could help CIT persuade the Federal Deposit Insurance Corporation to allow it to transfer assets to its banking subsidiary, said people close to the situation. However, chances of success were slim, these people said, and the company was also engaged in talks with lenders about financing that would allow the business to keep operating while in bankruptcy.

Goldman Sachs on Thursday was trying to put together a rescue financing for CIT that would offer lenders security, putting the new claims ahead of other unsecured creditors, according to one person familiar with the matter. That financing would likely only stave off a probable bankruptcy filing by a couple of months, others involved with CIT say. Goldman declined to comment.

Goldman has various exposures to CIT. In addition to engaging in derivatives transactions with CIT, including a $3 bn total return swap. As recently as Wednesday, Goldman staffers were telling other investors that a government bail-out of CIT would materialize and that the company was considering other measures, such as a debt exchange offer, that would buy it time.

If the group were to file for Chapter 11 protection it would be the fourth largest bankruptcy by assets in the US. But restructuring experts said it could end up in liquidation, given CIT’s difficulty in attracting additional funding and the lack of obvious white knights.

CIT’s failure to come up with a convincing plan to fund itself was considered a big factor in the government’s decision to withhold support from CIT. “If there was going to be an effort to save them, we needed to see a viable end point,” said one regulator.

Source/Full Story:: FT.com
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