CIT Group files Chapter 11, bonds active and better; YRC Worldwide notes jump on exchange news

By Stephanie N. Rotondo

Portland, Ore., Nov. 2 - CIT Group Inc. was Monday's "only story," sources reported, as the name dominated trading following its bankruptcy filing.

The company said late Sunday it had approved filing its prepackaged plan of reorganization, after receiving "overwhelming" support from bondholders. CIT's "assorted issues" took nearly half of the high-yield market's total trading volume, a trader said.

As the bonds are now trading flat without accrued interest, they were seen heading up by 3 to 4 points on the day.

Meanwhile, YRC Worldwide Inc. said that it would launch an exchange offer for its bonds and convertibles sometime this week. A trader speculated that some players were covering shorts, as the bonds gained about 10 points from last week's levels.

CIT files, bonds better

CIT Group announced it filed for Chapter 11 protections, putting an end to speculation regarding the middle market lender's fate.

On the news, CIT's bonds traded actively and better, though the gains were attributed to the accrued interest the notes are now trading with. One trader said about $500 million to $600 million of the company's various issues changed hands, on total market trading volume of around $1.4 billion.

"The only story was CIT," the trader noted, adding that activity outside the credit was limited. "There's nothing in junk land, that's for sure."

The trader placed the New York-based company's debt generically at 67.5 bid, 69.5 offered, "with the exception of the long ones" - the 6.1% notes due 2067 - which ended with a 7 handle.

Another trader pegged the notes at 67 bid, 68 offered across the board, also with the exception of the 2067 issue. That issue he saw at 7 bid, 8 offered, up from 5 bid, 6 offered last week.

At another desk, a source saw the bonds linked to CIT's Canadian arm up as well, the 4.65% notes due 2010 at 95.5 bid, 96 offered.

Late Sunday, CIT board approved moving forward with its prepackaged plan of bankruptcy, which had received nearly 90% approval from creditors, according to a press release.

However, CIT noted that the conditions for its exchange offer were not met.

"Due to the overwhelming and broad support from its debtholders, the company is asking the court for a quick confirmation of the approved prepackaged plan," the company said in the release. "Under the plan, CIT expects to reduce total debt by approximately $10 billion, significantly reduce its liquidity needs over the next three years, enhance its capital ratios and accelerate its return to profitability."

"The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy," said Jeffrey M. Peek, chairman and chief executive officer, in the statement.

"We are enormously appreciative of the extraordinary support we have received from our many constituencies. This market-based solution allows CIT to enter into the reorganization process well-prepared and positioned for a swift emergence."

CIT said that its recently expanded senior secured credit facility will be used to "meet clients' needs and to satisfy customary obligations associated with the daily operation of its businesses during the confirmation process." In addition, the company also recently secured a $1 billion credit line from Carl Icahn.

Still, some market players are upset by the deal, as it is expected that $2.3 billion of taxpayer money that was received last year will go unfunded.

The federal government is likely to lose its $2.3 billion TARP investment, wrote Kathleen Shanley, Gimme Credit analyst, in an afternoon report. "But by refusing to step up and rescue CIT Group's bondholders, the government saved itself from the prospect of sending good money after bad."

But even as Shanley noted the good sides, William Black, professor at Missouri-Kansas City School of Law, expressed tantamount to outrage.

In an interview with Yahoo! News, Black said that Treasury Secretary Timothy Geithner was to blame for the predicament.

"We put ourselves on the hook in a completely inept way where we lose first," he said. "We lose entirely as the taxpayers.

"It's like he [Geithner] burned billions of dollars again in government money, our money, gratuitously," Black said.

Following word of the bankruptcy filing, Fitch Ratings, Standard & Poor's and DBRS dropped their ratings on CIT.

YRC jumps on swap news

YRC Worldwide's 8½% due 2010 traded "a decent amount," a trader said, as the company announced it was readying to launch an exchange offer for the notes and its contingent convertibles.

The trader said the bonds gained about 10 points on the day, ending at 72 bid, 73 offered, up from earlier levels around 65.

"I think some people might have been short," he said of the immense gains.

The trader also opined that "maybe some people like it," referring to the debt swap, though in his opinion, "I still think it's a dog."

Though official terms have not yet been disclosed, YRC said that it expected it would offer $250 million of class A convertible preferred stock and at least 42 million common shares to 8½% noteholders and some convertible noteholders. Holders of the 3 3/8% convertibles will receive shares and preferreds equal to 97% of par, while remaining holders will receive shares and preferreds equal to par.

"We are pleased with the progress we've made with this group of key stakeholders in such a short amount of time," said Bill Zollars, chairman and CEO, in a statement. "This group understands our comprehensive plan and the long-term value of this company. The completion of the note exchange is an important milestone in our plan, which is expected to improve our cash flow and capital structure."

S&P, citing the swap news, cut its rating on YRC to CC from CCC.

YRC Worldwide is an Overland Park, Kan.-based provider of transportation services for the shipment of industrial, commercial and retail goods.

Broad market steady

Elsewhere in distressed land, a trader said that Fairpoint Communications Inc.'s 13 1/8% notes due 2018 "hung in there" around a 15.5 to 16.25 context, "pretty much where they've been." He said there were "a few trades in that area."

He added that 16 to 16.5 "still really looks like the inside market on it. There was some trading - but no great shakes."

Meanwhile, a trader saw Blockbuster Inc.'s 9% notes due 2012 "right around that 53-54 range, still where they've been. There was some activity, but not much."

Paul Deckelman contributed to this article.

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