CIT Group paper racks up more losses; Seitel remains under pressure; broad market holds steady

By Stephanie N. Rotondo

Portland, Ore., July 13 - CIT Group Inc. continued to be the top trader Monday, as the company deals with liquidity concerns.

Traders reported that CIT paper took up the bulk of trading volumes, with the company's debt moving lower by about 10 points on the day, depending on the issue. One trader opined that the heavy turnover was simply a betting game, as the market wonders if the bank will be deemed too big to fail or not.

Meanwhile, Seitel Inc.'s bonds continued their steady decline. There is still no word on whether the company has reached a deal with its lenders regarding its non-compliance.

"I think we are going to start seeing more of this stuff," a trader said referring to names such as Seitel and its ilk that have been - or will be - slowly but surely heading for lower ground.

The trader added that without a huge increase in employment - not to mention profits - "I think that that has to happen," speaking of an increase in distressed companies.

"CIT is an interesting catalyst because they lend to so many businesses," he explained. Therefore, if the company is allowed to fail, the other shoe could in fact drop.

CIT paper racks up losses

"Hundreds of millions" of CIT Group's debt changed hands Monday, according to a trader, as concerns regarding the company's ability to pay upcoming maturities could not be ignored.

"Depending on how for out you go, it's trading between 50 and 80," the trader said. He placed the floating-rate notes coming due in August in the low-80s, versus in the low-90s on Friday.

"Close to $100 million traded in just that one issue," he added.

The 6% notes due 2036 were meanwhile seen trading in a wide range of 52 to 57, with "$50-odd million" trading.

Another trader said there were "a lot of bid lists with CIT paper" floating around and of the top 20 most traded names, CIT made up 18.

"A lot of guys are looking to buy lower-priced items," the trader said. "[CIT] is trading closer to recovery value prices than yields."

Credit-default swaps on the company's debt have reportedly increased to around 41.5.

The financial institution's notes have come under attack in recent sessions, as the company awaits to hear if it will be approved for government backing under the FDIC's Temporary Liquidity Guarantee Program. CIT had hoped to gain federal backing on new debt it hoped to issue to refinance about $10 million in maturing debt through 2010.

But as the market waits to see if approval will come, players are betting on whether CIT is too big to fail - or if it will in fact meet its end.

"The reason so many are trading is that so many people have different ideas on that," the first trader explained. He likened the issue to SLM Corp.'s struggles, over that of American International Group Inc.'s.

"It's a little bit of a crapshoot and for the most part, that's how people are playing it," he stated.

Market players have debated the question at length and still, there is no answer. Will the government step in or will the bank be allowed to die?

According to a Bloomberg report, internal documents show that CIT's failure would likely bring down about 760 manufacturing clients who have borrowed from the lender and nearly 300,000 retailers.

Both Moody's Investors Service and Standard & Poor's have taken action, cutting their ratings on the company. Moody's said its rating could be dropped even more due to the company's "inadequate progress" on improving its liquidity position.

Additionally, the company has reportedly hired Skadden, Arps, Slate, Meagher & Flom LLP as an adviser, cueing the bankruptcy rumors to start flying. The firm is known for its merger and acquisition work, as well as its bankruptcy cases.

Seitel remains under pressure

Seitel, a Houston-based seismic data provider, continues to see its bonds decline, though the company itself has been radio silent.

One trader said about $4 million to $5 million of the 9¾% notes due 2014 traded between 48.25 and 49. That compares with levels around 51 on Friday and 53 bid, 54 offered on Thursday.

Another trader quoted the notes at 47.75 bid, 49 offered, down from 49 bid, 50 offered.

In early July, Seitel released second-quarter revenues and cash resales, which showed a significant dip from the year before.

"The absence of large licensing deals and the low number of library card contracts continue to hurt our licensing revenue," the company said in a press release issued July 7.

"We believe that the drop in our cash resales has been driven by weak prices for natural gas, further exacerbated by the economic uncertainty and tough credit markets that have triggered a sharp reduction in exploration spending in the U.S. and Canada," the release continued. "North American drilling activity continued to fall during the second quarter, with the average year to date rig count dropping by 38% compared to the same period of last year. Despite this sharp reduction in drilling activity, we believe that production of natural gas has not fallen significantly and continues to exceed current demand. We have seen no indications at this point that our industry environment will improve materially in the near term or that our resales will increase."

As of June 30, Seitel had $28.7 million in cash and was non-compliant with its undrawn $25 million with Wells Fargo. The parties have begun negotiations regarding the status of the facility.

Seitel will release its second-quarter earnings on Aug. 13. A conference call is scheduled that day at 10 a.m. ET.

Broad market steady

Away from the CIT-dominated trading, Lear Corp.'s notes were moderately active, according to a source.

The source said about $9 million of the 8½% notes due 2013 traded around 40. Another source also placed the debt around 40, calling that "about unchanged."

Motorola Inc.'s 6½% notes due 2028 also closed about unchanged around 69, with $10 million changing hands.

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