Published: Monday, 20 Jul 2009 | 8:27 PM ET

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Commercial lender CIT Group  confirmed late Monday that it has secured a $3 billion bailout from its bondholders, saving the company from bankruptcy protection.

Photo by: Ernst Moeksis

It's a new twist in the financial crisis: A major bank on the verge of a last-minute rescue—only this time the bailout isn't coming from the government. The deal marks the first time since the banking crisis erupted that private investors are stepping in to save a big financial firm without federal help or oversight.

Shares of CIT

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[CIT  Loading...      ()   ] leaped 78.57 percent Monday to close at $1.25. The stock rose about another 4 percent in extended trading.

CIT said the rescue includes a $3 billion secured term loan with a 2.5-year maturity, which will ensure that its small and midsized business customers continue to have access to credit. Term loan proceeds of $2 billion are committed and available immediately, with an additional $1 billion expected to be committed and available within 10 days.

The lender also is moving to immediately restructure its debt to provide additional liquidity and further strengthen its capital position.

"With today's announcement, our board of directors, management team, advisers, and a steering committee of bondholders, who are lenders under the term loan financing, are now actively focused on a restructuring plan that will better position our company for the long term," said Jeffrey M. Peek, CIT chairman and CEO, in a statement.

CIT has launched a cash tender offer for its $1 billion worth of outstanding floating rate senior notes due Aug. 17, offering $825 for each $1,000 worth of notes tendered on or before July 31. Lenders involved in the bailout deal have agreed to tender all of their Aug. 17 notes, CIT said. The company and the steering committee of bondholders now will work on drawing up a number of debt swap offers designed to alleviate CIT's debt burden and further shore up the company's cash position.

The deal suggests the appetite for risk in the private sector is increasing, analysts said. It also could provide a framework for other financial rescues if Washington turns off the bailout spigot.

The negotiations' success, along with robust earnings reports last week by several big banks, may raise hopes that private capital can start flowing again into the beaten-down banking industry, analysts said. That was all but unthinkable just a few months ago.

"You've got private money coming in and essentially giving a vote of confidence" in banks' future profitability, said Vincent Reinhart, former director of the Federal Reserve's monetary affairs division. "It's encouraging."

CIT lends money to nearly a million small and midsize U.S. companies. It was forced to turn to bondholders for help after the government refused to save the company last week, a sign the administration is pulling back on costly and unpopular bank rescues.

The lifeline for CIT, whose clients include Dunkin' Donuts franchises and clothing maker Eddie Bauer, aims to sustain the company long enough for it to restructure its debt. It does not guarantee CIT will avoid bankruptcy.

Ahead of the deal's confirmation investors sent shares of CIT jumping 55 cents, or 78 percent, to $1.25 in trading Monday.

"It tells me that the appetite for risk is increasing, and people are betting that a recovery is coming," said William Larkin, fixed-income portfolio manager at Cabot Money Management in Salem, Massachusetts.

• Slideshow: The Largest Bank Failures of 2009

Had CIT been allowed to collapse, some experts feared it would have dealt a crippling blow to an economy still bleeding hundreds of thousands of jobs a month despite a nearly $800 billion federal stimulus program.

The retail sector would have been hit especially hard. CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts say 60 percent of the apparel industry depends on CIT for financing.

"If CIT had gone under, that would have left a huge hole in the supply chain," said Craig Shearman, a spokesman for the National Retail Federation, one of the trade groups that had urged the government to prevent CIT's collapse.

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