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Vultures Feed On Cit's Carcass

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July 22 (Bloomberg) -- Pacific Investment Management Co., Centerbridge Partners LP and the four other bondholders that put up $2 billion in financing for CIT Group Inc. made an instant $100 million on an investment analysts say is almost risk free.

CIT, the 101-year old commercial lender struggling to retire $1 billion of debt maturing next month, agreed to pay a 5 percent fee to the creditors and annual interest of at least 13 percent. On top of that, the New York-based company pledged assets worth more than five times the amount of the loan as collateral.


Even if CIT fails, the bondholder group will probably make money because of the collateral, according to Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. The lenders have “virtually 100 percent assurance†they’d be able to recoup all their money in a bankruptcy, said Sameer Gokhale, an analyst with Keefe Bruyette & Woods Inc. in New York.

“This is called Don Corleone financing,†Egan said, referring to the patriarch in the organized-crime family depicted in the 1972 film, “The Godfather.†“You can’t lose money on this deal.â€

Outside of the “urban underworld,†Egan, 52, said he couldn’t recall seeing a loan backed by as much collateral that paid interest rates so high. “These terms would make a pawn-shop operator blush.â€

Edited by VoteWithYourFeet

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