CIT Winners Look Like Losers in Bond Swap

(Updated with additional analysis of the tender offer, closing stock prices)

NEW YORK (TheStreet) -- CIT Group (CIT) bondholders who accepted the company's tender offer, announced Monday, probably fared far better than the company's press release would suggest.

The New York-based lender to mid-sized companies announced Monday it had completed a tender offer for $1 billion in floating rate notes, getting owners of 59.81% of the obligations to accept 87.5 cents for every dollar they were owed.

That's not bad, some might say, given widespread reports on the dire state of CIT's finances. While the government was busy propping up the likes of General Electric (GE) Citigroup (C) and Bank of America (BAC) by guaranteeing their debt, poor CIT was left out in the cold.

Only 87.5 cents doesn't seem so hot compared to what was received by the owners of the remaining 40% of the notes who did not accept CIT's offer. They were paid in full. That's right, the payments were due on the same day CIT announced the settlement, and buried in the announcement was this line: "CIT will pay amounts due on notes that have matured but were neither tendered in, nor subject to the offer in accordance with the terms of those notes."

Translation: Holdouts got all their money back.

So if the holdouts had full recoveries, those who took a 13.5% haircut must be chumps, right?

Well, maybe not. A person involved in the negotiations says the parties that accepted CIT's deal are the same ones who provided CIT a $3 billion rescue package last month. According to Bloomberg, the lenders are Pacific Investment Management Co., Centerbridge Partners, Baupost Group, Capital Research & Management, Oaktree Capital Management and Silver Point Capital.

Bloomberg reported last month that these firms gave CIT terms on its loan that were so tough, they made $100 million almost instantly while taking virtually no risk. They also get 13% interest, and took collateral worth more than five times the amount of the loan, Bloomberg reported.

The firms could not immediately be reached for comment. But they probably wanted to keep CIT out of bankruptcy because they have a good shot at getting an equity stake in the company, speculates Bill Brant, president and Development Specialists, a Chicago-based firm that advises companies on restructurings. DSI is not involved in the CIT restructuring.

Brandt says many of these firms probably bought CIT's debt at distressed levels lower than 87.5 cents, so they are likely to make money on the tender offer. Further, they will benefit by keeping CIT out of bankruptcy, because a bankruptcy filing would make it even tougher for CIT to get access to new funding.

CIT shares, which were positive much of the day, closed down 5 cents to $1.36.

-- Written by Dan Freed in New York

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