Bruce Krasting

Saving CIT: Good News for the Confidence of the Entire Financial System

I was offered a loan deal at the end of last week. This was a Duncan Donut deal in CA. Supposedly there was a 50-50 LTV and it was secured by the lease with first lien.

The pricing was a point a month. That is over 13% net. In addition there was another 1% a month to pay down the advance. 24% cash on cash. There were upfront points involved as well.

This is approximately double what these types of deals were going for six weeks ago. I did not do this rich deal. Chicken.

This is what the absence of CIT and other lenders are doing to small businesses. This is going to hurt.

You have to be careful with this $3 bil deal. It looks like things are working without fed intervention. Maybe not. This 3 bil. was not cheap. Libor+10?? This deal also had very tough language in the loan docs. I would bet that this deal has the look of a DIP loan. In other words it is money good by virtue of seniority. Watch that the $3 bil loan holders become predators to this deal by Thanksgiving.

Let CIT Fail: The Business Model Is Broken

This is not an April 2010 event. It is a next week event. They are in covenant default on a number of their bond indentures. This means the holders can accelerate and demand immediate payment.

Shrike: GS does not make bad loans? In this case you might be right. One can assume that that GS has collateral against those advances. (or they bought CDS against it). If you are a troubled borrower the last thing you want is to owe money to
GS. They are not nice and will move fast to protect themselves.

This is an interesting case of 'too big to fail'. With $70+ billion of IOUs it is not a small bust up. If CIT goes chapter it will not kill us. This has been in the works for some time. But the absence of CIT as a lender to small business is going to hurt the broad economy.

A decidedly brown shoot....