Ouch? CIT Hit With Interest Rate More Than 25 Times Libor http://www.bloomberg.com/apps/news?pid=20601087&sid=aiJwhWb4QleU
It's the very definition of loan sharking, if you ask me. I'm more than certain that kneecaps will be broken if they screw anything up... Loan term 2.5 yrs. $2bn available now, $1bn by month end. 5% fee ($100mm on the initial $2bn) and LIBOR + 1000bp (with floor at 3% !). Collateral valued at 5 x loan value. Thats 500% collateral 1st call pledged..(stated as 5x book value and 3x fair value) 1% charge on loan amount not drawn upon. Penalty for early retirement 2% 6.5% charge on the amount it wants to retire. The 6.5% declines to zero over 18m. Financing for the deal provided by a friendly UK clearing bank, as far as I am aware.
And if you think 25x Libor is bad: "CIT, led by Chairman and Chief Executive Officer Jeffrey Peek, said in a regulatory filing yesterday that the loan doesnât solve the funding challenges and it may be forced to seek bankruptcy protection unless holders of $1 billion in floating- rate notes due Aug. 17 accept 82.5 cents on the dollar for the debt."
Actually, the "25x LIBOR" headline is complete bollox and quite misleading. You can't compares a rate on a 3yr loan with current 3M LIBOR. In reality, it's more like 8 times LIBOR. Still, it's one good deal for Pimco et al, one bad deal for CIT.
What's the point of this? I mean really, what CEO or business owner with the right set of mind would actually accept this deal? It's a waste of time. Oh wait, he gets to collect his salary & fringe benefits a couple years longer, so now it makes sense.
I read that GE wanted to get in on the action but they were told no by CIT. GE was offering better rates.
it's the sign of the times in finance. Even excellent credit holders are finding it more difficult to get cheap heavy loans.