CIT Business Credit, a unit of the CIT Group that provides asset-based financing, is looking to provide $1 billion in exit financing to companies that are seeking to emerge from bankruptcy this year, according to LMW sister publication Corporate Financing Week. CIT is also looking to grow its distressed mergers and acquisition and leverage buyout financing capabilities to compensate for an expected decline in demand for debtor-in-possession financing in the second half of the year, said Mitchell Drucker, senior v.p. at CIT Business Credit. The firm is eyeing companies like WorldCom, Federal-Mogul, ANC Rental Corp., the bankrupt owner of Alamo Rent A Car and National Car Rental, and United Airlines as prospective clients, he said, noting that the firm is not yet in discussions with these companies.
CIT will look to lend up to $300 million per company, Drucker said, noting that CIT Business Credit has existing relationships with United Airlines, Fed-Mogul and WorldCom having participated in their debtor-in-possession financings. CIT provided $150 million to WorldCom in DIP financing, $100 million to Federal and $300 million to United. Dates have yet to be set on when these companies will emerge from bankruptcy.
Meanwhile, CIT is conducting due diligence on Formica Corp. and Special Metals. These companies have asked CIT to support their exit financing, Drucker stated. The Formica deal will be up to $100 million and $175 million for Special Metals, Drucker said, noting that CIT has not yet committed to participate in those companies' exit financing. Over the last year CIT has committed more than $1 billion in DIP financing, Drucker said, declining to speculate on how much that amount could decrease given the anticipated fall in demand. Factors contributing to the slowing demand for DIP financing include a dropping default rate and a hot high-yield market that allows companies to refinance their debt, he said.