CIT Draws on $7.3 Billion Bank Line; Shares Plummet
CIT Group said it is drawing on a $7.3 billion bank line to help conduct daily operations, a move that highlights the commercial finance company's difficulty in raising cash to pay off debt.
CIT said it was using the bank line to repay debt maturing in 2008, including commercial paper, and to finance its main businesses.
Drawing on bank lines is often seen as an emergency action for companies unable to get financing elsewhere.
CIT shares plunged more than 35 percent Thursday.
Debut Insurance Costs Spike
The cost to insure the debt of CIT jumped after the company said it's drawing on the bank line.
The cost to insure CIT's debt with credit default swaps is trading at distressed levels, costing 27 percent of the sum insured as an upfront payment, in addition to annual premiums of 500 basis points, according to broker Phoenix Partners Group. They had cost 24.5 percent upfront before the news.
This means it would cost $2.70 million in one lump sum to insure $10 million in debt for five years, in addition to annual premiums of $500,000 per year.