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Strong bank bid could squeeze CIT's CDS auction
Wed Nov 18, 2009 4:02pm EST
By Karen Brettell
NEW YORK, Nov 18 (Reuters) - An auction to settle credit
default swaps on CIT Group (CITGQ.PK) is likely to be the
largest the market has faced so far, and trading by banks with
exposures to CIT's swaps could potentially squeeze its the
prices of its bond and drive up CDS valuations.
CIT, a lender to hundreds of thousands of small and
medium-sized U.S. businesses, filed for a prepackaged
bankruptcy on Nov. 1, triggering payments on its credit default
swaps -- contracts that protect against losses from a debt
default.
The auction on Friday will determine a value for the CDSs,
which will be used to settle the contracts.
An unexpectedly high CDS valuation, in general, may favor
protection sellers while a low valuation could benefit
protection buyers. This is because the protection seller pays
the buyer the full sum insured, minus the recovery value when a
borrower defaults.
CIT's collapse is unlikely to lead to outsized losses in
the CDS market though.
"The overall impact of CIT's default should be relatively
contained given that its troubles have been well anticipated by
the market, as evidenced by its recent spread history," Atish
Kakodkar, analyst at credit research firm CreditSights, said in
a recent report.
The CIT auction is significant, however, as it will likely
involve the largest volumes the process has seen to date.
Net volumes of around $3.1 billion are outstanding in
single name protection on CIT's debt, while an additional $2.9
billion is outstanding in trades based on indexes the company
is included in.
A large amount of protection on CIT was also sold in
tranche trades based on the indexes. In addition, the company
was among the most popular credits included in other
collateralized debt obligations (CDOs) backed by CDSs.
Volumes in these deals are hard to estimate, though
analysts say they are likely large.
Standard & Poor's said in July that it rated 2,470 CDO
tranches that had exposure to CIT.
BANK BID
Banks that were counterparties to CDOs including CIT are
likely to provide a large bid to buy bonds in the auction,
which could potentially drive up the value of the CDSs,
analysts said.
"Dealers who choose to buy the bonds during the auction
could cause final recovery on the name to be higher than it
would otherwise be," analysts at Barclays said in a recent
report. Strong demand by banks for the debt could push up CIT's
final CDS price by as much as 2.5 points to 4 points, Barclays
said. The company's bonds traded on Wednesday between 66 and 70
cents on the dollar, according to MarketAxess.
CIT, which was rated investment grade until April this
year, was a popular company to include in CDOs because its CDSs
yielded an attractive premium relative to the company's rating
when the majority of the deals were issued between 2005 and
2007.
Banks that acted as counterparties to these deals hedged
their exposures by selling protection on the companies
underlying the deal in the single name market. These single
name contracts, however, are settled one to two months before
contracts in the CDOs are.
The banks are expected to buy CIT's bonds to protect
against losses they would face if CIT's debt gains in the gap
between settling each of the trades.
Potentially countering this bid are so-called basis
investors, who own CIT's debt and also own CDS protection.
These investors are expected to be large sellers of the bonds
in the auction.
If enough of these investors sell bonds in the auction they
may offset any the bank bid for the debt.
"The net open interest to buy or sell bonds in the auction
should, therefore, depend primarily on the buying demand from
correlation desks versus the selling interest from basis
traders," said CreditSights' Kakodkar.
http://www.reuters.com/article/marketsNews/idCNN1857745420091118?rpc=44
The face value for the CITBQ preferreds is $25. 10% would be $2.50.
FWIW, LEAR just exited BK. In the reorganization proforma they estimated the new shares would come to market at about $35 a share. The 'when issued' shares closed Friday at $65. The bondholders made out very well.
Personally I bought their bonds at 25 (25 cents on the dollar) I sold them at 62 for a nice profit. Now I wish I would held some.
where would that put the CITBQ's share price if they do indeed get .10 on the dollar? thx:)
There is talk that the Gov't preferreds may get as much as 10 cents on the dollar, NOT 10% of the company. If the gov't gets 10 cents on the dollar for their shares, the CITBQ's ranking equally should get 10 cents on the dollar as well.
The balance sheet of the new Cit Group, could be transformed into something like the balance sheet of CNO http://www.google.com/finance?q=NYSE:CNO&fstype=ii with 30,269.00 of assets and 26,935.30 of liabilities.
care!! Preferred A market capitalization was 120 million when TARP were added, 120 is 5.15% of 3300, so that, if both stocks are treated equally, if the U.S. government give 10% of the new company, preferred A only give 0,52%!, if government 20%, preferref A 1,03%. Only if the actions of the new company worth 28$ and government give 20% is justified the current stock price.
Icahn Announces Increase in Tender Offer Price for CIT Group Notes, this is because its were so cheap?, Icanh not want that people buy more debt?, until the eighth day of December not will be confirmed bankruptcy, would happen if before the day 8 There are massive purchases of bonds by people who want to be part of the stockholding of the new company?, the company would not go bankrupt?, yes?.
well the stock did not move on the news so who knows can only hope
Good question. Anyone have any ideas?
is this good or bad for the stock holders?
CIT default swap auction to be held Nov. 20
Thu Nov 12, 2009 1:39pm EST
NEW YORK, Nov 12 (Reuters) - Auctions to settle credit default swaps insuring the debt of CIT Group (CITGQ.PK: Quote, Profile, Research, Stock Buzz) will be held on Nov. 20, following the commercial lender's bankruptcy earlier this month, auction administrators Markit and Creditex said on Thursday.
The auction is expected to be one of the largest since the failure of Lehman Brothers (LEHMQ.PK: Quote, Profile, Research, Stock Buzz) due to the large amounts of protection written on CIT's debt, though market participants said the process has been well tested and is unlikely to create market disturbances.
Around $3.1 billion in net volumes is outstanding in single name protection on CIT's debt, according to data by the Depository Trust & Clearing Corp. In addition, CIT was included in a number of tranche trades based on CDS indexes and was a common credit in collateralized debt obligations.
The auction will set a value for the CDSs, which will be used to close out positions. When a borrower defaults, sellers of protection on the debt pay buyers the sum insured, minus a recovery value.
CIT, a lender to hundreds of thousands of small and medium-sized businesses, filed for bankruptcy on Nov. 1, as the global financial crisis left it unable to fund itself and the recession clobbered its loans. See [ID:nN01408863]
CDSs are used to protect against a borrower defaulting on their debt or to speculate on their credit quality. (Reporting by Karen Brettell; Editing by Leslie Adler)
http://www.reuters.com/article/marketsNews/idCNN1242489120091112?rpc=44
some buy volume on citbq today
They will do what it takes to keep tax payers happy
so all the prefered will be thrown a hot dog.
On the web site http://ir.cit.com/phoenix.zhtml?c=99314&p=irol-stockquote says: "*On November 1, 2009, CIT filed a voluntary petition in bankruptcy under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New York. CIT common stock is currently trading over the counter with symbol CITGQ.PK. If the prepackaged plan of reorganization is confirmed, all existing common stock will be extinguished."
Is important that only talk about common stock, not say common stock and preferred stock, I think there will be 10% -15% of stock for all preferred stock. preferred D 6-10%, C 2-2.5%, A 2-2.5%. Common stock 0-0,5%. Is what I think, greetings.
i added some .31's:)
The Government prefered is in par with CITBQ
If we do not get that we will have a class action on our hands
I think we could see a break out in the next 30 days
maybe as high as $3.00?
what i think :
as say Icahn, shareholders should get normally between 2 and 3 % of new capital infusion
Also if not there is CRV but i don't know if CITBQ will get them. As i know the gouvernement preferred will get at least 230 millions $ on 2.3 billions $
so somebody need to confirm that CRV will be for CITBQ too
i suppose
also Icahn plan to give a little to shareholders is a fair thing to consider. I hope institutionnal will manage to convince the bankruptcy judge to ask creditors to do it.
Because it isn't normal that shareholders lost everything
Im buying 1st thing in the morning
lol. there are still some large-ish institutional sellers left looks like.
they need to book their tax losses
Never happen with these bid whacking MF!
I'll start droping the h*ll out of shares if they won't to see how low we can go. There starting to piss me off, I have removed all bid support.
14 million out on this stock. thanks.
Scottrade showing a 14 million OS with a 5.1 million market cap.
CITBQ > $25 x 14 millon = $350 million, currently 5.2 million.
Google also showing 14 million.
http://www.google.com/finance?q=NYSE%3ACITBQ
Shows 392 million for CITGQ, the same as yahoo.
5 = Shares outstanding is taken from the most recently filed quarterly or annual report
and Market Cap is calculated using shares outstanding.
thanks
around... I was hoping to source that information from a filing... or a third party web site...
thanks for trying
CITBQ = 14 millon
CITGQ = around 380 million
Does anybody have an authorized and issued share count for the CIT preferred share classes?
CITBQ Cit Grp. Pfd A (fka CIT-A)
CITDQ Cit Grp. Prfd C (fka CIT-C)
CITEQ Cit Grp. Prfd Z (fka CIT-Z)
I don't care about the common. But others might, if anybody has that information.
alot of bid whacking here. They will be out before long and chasing at 0.80 to get back in. I guess the rookies are scared to 5K worth of stock.
I have up my position to 225K.
0.80 is very easy from here.
Getting ready to take off, somebody was knocking it down all day with low volume, trying to get shares. yep we should be about 1/3 of CITDQ or higher.
Should be at least 0.70 to 0.80. I think MM are still trying to get shares. Low volume dips. We should be there or higher by end of week.
it should be $0.6-0.8 based on CITGQ and CITDQ.
CITBQ~.38 X .42
Best case whats this stock worth
starting to move ..some one keeps trying to knock it down with small trades but with any volume this will fly
CITGQ (common share): $0.20. CITDQ (Pr-C): $1.86, while CITBQ is staying at $0.34? Weird!
Great if this happens..Except I am under the impression CIT-C value is $350M, CIT-B is $575M, CIT-A is $350M and CIT-D governments share is $2071M....I am I off on these figures? If so can you point me to the docs that show correct figures?
CITBQ Here is why everyone looking to pay CIT should look at CITBQ preferred A's. CITGQ will be heavy diluted again before long this why no bounce yet.
Under the terms of the Company’s 8.75% Non-Cumulative Perpetual Convertible Preferred Stock, Series C (the “Series C Preferred Stock”), as a result of the delisting of the Company’s common stock, each share of Series C Preferred Stock is immediately convertible into 9.0909 shares of the Company’s common stock. Due to the automatic stay in connection with the Chapter 11 Cases, the Company is prohibited from paying cash in lieu of any fractional shares.
They all might have received 9.0909 shares in lieu of their holdings! 9*20 cents = 1.80 $$
So eventually 500 MLN of CIT-PC is gone! What is left is Treasury prfds (2.1 BLN) and CIT-PA's(14 MLN)!!
CIT-PC will not trade any more, all of them will be converted to common shares!
CIT Confirmation Hearing Scheduled for December 8, 2009
Tuesday, November 03, 2009 16:13ET
CIT Group Inc. (OTC: CITGQ.PK), a leading provider of financing to small businesses and middle market companies, today announced that the U.S. Bankruptcy Court for the Southern District of New York (“the Court”) has scheduled a hearing to consider the confirmation of CIT's prepackaged plan of reorganization for Tuesday, December 8, 2009.
CIT Group Inc. and CIT Group Funding Company of Delaware LLC received the relief they sought from the Court with respect to its “first day” motions, allowing the Company to continue to operate in the ordinary course.
Additional Information
Additional information about CIT’s restructuring can be found on the Company’s Web site, www.cit.com. For access to Court documents and other general information about the Chapter 11 cases, please visit www.kccllc.net/citgroup. The Company has established a toll-free Supplier Information Line at 800-422-2738 or, if you are calling from outside the U.S. 973-422-3877 and a toll-free Restructuring Information Line for all other interested parties at 866-967-1786 or 310-751-2686.
About CIT
CIT (OTC: CITGQ.PK) is a bank holding company with more than $60 billion in finance and leasing assets that provides financial products and advisory services to small and middle market businesses. Operating in more than 50 countries across 30 industries, CIT provides an unparalleled combination of relationship, intellectual and financial capital to its customers worldwide. CIT maintains leadership positions in small business and middle market lending, retail finance, aerospace, equipment and rail leasing, and vendor finance. Founded in 1908 and headquartered in New York City, CIT is a member of the Fortune 500. www.cit.com
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements within the meaning of applicable federal securities laws that are based upon our current expectations and assumptions concerning future events, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. The words “expect,” “anticipate,” “estimate,” “forecast,” “initiative,” “objective,” “plan,” “goal,” “project,” “outlook,” “priorities,” “target,” “intend,” “evaluate,” “pursue,” “commence,” “seek,” “may,” “would,” “could,” “should,” “believe,” “potential,” “continue,” or the negative of any of those words or similar expressions is intended to identify forward-looking statements. All statements contained in this press release, other than statements of historical fact, including without limitation, statements about our plans, strategies, prospects and expectations regarding future events and our financial performance, are forward-looking statements that involve certain risks and uncertainties. While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results, and our actual results may differ materially. Important factors that could cause our actual results to be materially different from our expectations include, among others, the risk that the additional facilities do not provide the liquidity that CIT is seeking due to material negative changes to CIT’s liquidity from draw down of loans by customers, the risk that CIT is unsuccessful in its efforts to consummate the plan of reorganization. Accordingly, you should not place undue reliance on the forward-looking statements contained in this press release. These forward-looking statements speak only as of the date on which the statements were made. CIT undertakes no obligation to update publicly or otherwise revise any forward-looking statements, except where expressly required by law.
Contact Info:
CIT Media Relations:
C. Curtis Ritter, 212-461-7711
Director of External Communications & Media Relations
Curt.Ritter@cit.com
or
CIT Investor Relations:
Ken Brause, 1-866-54CITIR (542-4847)
Executive Vice President
investor.relations@cit.com
http://www.knobias.com/story.htm?eid=3.1.e13e45f69cd86502b15602130beb4481bb01bce9bc25f1ba37bedee700e12e5e
CITDQ, $1.47, up $0.12, while CITBQ down $0.04? Doesn't make sense.
thanks for sharing Joe. Much aperication.
Back of the envelope calculation (very rough numbers from someone that should not even be attempting to try to estimate value left over for the preferreds. Do your own DD.)
The proforma post bk shows a book value of $8 bil. If CIT were to sell for 1.5 times book that would lead to a market cap of $12bil.
Those claims above ours that are not going to be paid in full, but at 70 cents on the dollar is about $36.7 bil. At 70% ($25.7bil) that leaves a balance of $11 bil that they will be due in stock. That leaves $1 bil to cover the preferreds shares claims of about $2.8 bil in Series A,B, and D. That is about 35 cents on the dollar in CVR.
Of course if CIT sells for not much less than 1.5X book we are screwed. More than 1.5X book and we get very happy.
Again, these are very rough numbers. Just wanted to share my thought process.
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Cit Grp. Pfd A (CIT-A)
[chart]www.zerohedge.com/sites/default/files/images/CIT%20POR%201.jpg[/chart]
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