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Amid rumblings that CIT Group Inc. is struggling to get bondholder support for its proposed debt swap, the lender said Tuesday that chairman and chief executive officer Jeffrey M. Peek will resign at yearend.
News of the transition came Tuesday morning, not long after reports circulated that CIT, a major lender to small and midsize businesses, might have to consider a pre-negotiated bankruptcy as its proposed debt swap faced ongoing resistance. Sources said bondholders are seeking better terms than those proposed by the company in early October.
Peek, who will spend the remainder of his tenure leading CIT’s restructuring efforts, said it was the appropriate time to “focus on a transition of leadership.” He emphasized that the company’s restructuring plan “is designed to enhance its capital levels, bolster liquidity and return the company to profitability.”
The CIT board is forming a search committee to oversee the recruitment process for Peek’s successor.
Shares of CIT ended the day at 92 cents, down 12 cents, or 11.5 percent.
In a research note dated Oct. 4, analysts at CreditSights said CIT’s debt reduction target of $5.7 billion puts in doubt the likelihood of the exchange offer succeeding. They reasoned the “higher interest rate on the new debt and the company’s plan to add $3 billion to $6 billion of new secured debt mitigates any interest savings from the debt reduction.”
The analysts also noted, “Although the exchange could buy time for the company by moving its maturities into the future, without a means to generate additional liquidity to repay these maturities in the future, we believe CIT could be setting itself up for another liquidity crisis down the road.”
CIT has been rocked by liquidity problems and barely escaped a bankruptcy filing in July. It has a limited amount of time to determine what is its best option with $3 billion in debt coming due in November and December.
Since July, sources have said, and recently confirmed, that a bankruptcy filing would involve only the parent company. That means operating divisions such as CIT’s profitable factoring business, a crucial participant in the financing of many fashion companies, can continue operating without the impact from a bankruptcy.
CIT’s plans following a restructuring would include a bank strategy that would require approval from the Federal Deposit Insurance Corp. to transfer assets and platforms into its bank, after which CIT would then need to build or acquire a deposit-raising platform. According to the CreditSights analysts, obtaining FDIC approval might not be so easy. “Given that the FDIC is looking at a $45 billion-plus deficit, we question why it would put additional capital at risk by allowing a company with shaky financials to ramp up its deposit platform,” the analysts noted.
Under Peek, the firm expanded its reach beyond commercial lending and into riskier businesses such as student loans and subprime mortgages. CIT shuttered both operations last year, when its net loss totaled $633.1 million, and, in December, converted into a bank holding company to qualify for $2.33 billion in aid from the Troubled Asset Relief Fund.
Peek has served as ceo since July 2004 and as chairman since January 2005, according to a preliminary proxy filed by CIT in March with the Securities and Exchange Commission. He joined CIT in September 2003 as president and chief operating officer. Prior to that, he was vice chairman of Credit Suisse First Boston and was responsible for the firm’s financial services division, including Credit Suisse Asset Management, Pershing and Private Client Services. Before joining CSFB in 2002, Peek spent 19 years with Merrill Lynch.