Insurers Breathe Sigh of Relief Over CIT

CIT Group(CIT Quote) is looking safe, at the moment, as bondholders have agreed to hand over the $3 billion in funding the company had been asking the U.S. Treasury to provide.

Bondholders, including the 300 insurance companies that hold $3 billion in CIT bonds, breathed a sigh of relief.

CIT's stock gyrated, alternately sinking and soaring by as much as 75% in one day. There was talk of funding by JPMorgan Chase(JPM Quote), among others. After all was said and done, the insurer's shares were close to where they were before the crisis had reached a critical state.

The deal was reportedly brokered by Pimco, a subsidiary of Allianz(AZ Quote), which holds about $98 million in CIT bonds, according to SNL Financial.

Pimco has had some recent success. In a game of brinksmanship between General Motors'(GMGMQ Quote) GMAC and bondholders, neither side was prepared to move, and it appeared GMAC could have been forced into bankruptcy earlier this year. Finally someone blinked, and it was neither of them. The Federal Reserve changed the rules and agreed that GMAC could form a bank holding company without bondholders' agreement. GMAC holds $21 million in CIT bonds.

Faced with the Treasury's refusal to provide financing, CIT was in dire trouble on Friday, and the negotiations with JP Morgan could well have been a precursor to Chapter 11 bankruptcy as much as a discussion about providing funding. That would have benefited JPMorgan if it had taken over CIT with a much lower debt structure.

Fortunately for CIT and insurers, a deal was struck. Other insurance companies included Aflac(AFL Quote), with an estimated $218 million; Manulife Financial(MFC Quote), with $147 million; Zurich, with $146 million; and Genworth Financial(GNW Quote), with $139 million.