Oaktree, Centerbridge among CIT bondholders to offer $3bn rescue

Oaktree Capital and Centerbridge Partners are part of a bondholders’ group that has put forth a $3 billion rescue plan for distressed mid-market lender CIT Group to keep the bank from collapse.

Under the plan, the bondholders will provide $2 billion immediately and another $1 billion to be available in the next 10 days, CIT said in a statement. The financing matures in two and a half years.

The financing will be used for “general corporate purposes and working capital needs” and to buy back at a discount some of the bank’s debt that matures in August.

CIT, a bank holding company with more than $60 billion in assets, has offered to pay $800 for each $1,000 of principal amount on its senior notes due 17 August as part of its restructuring effort.

CIT may still have to file for bankruptcy protection if it does not attract enough bondholders to participate in the debt buyback, the bank said in an SEC filing Tuesday.

CIT creditors participating in the rescue include Oaktree, Centerbridge, Silver Point Capital, hedge fund Baupost Group, Capital Research and Management and Pacific Investment Management Company, according to various media reports.

The bank has struggled with a $2.4 billion debt load that comes due between September and December of this year, and it has another $8 billion due in 2010, according to the Wall Street Journal. CIT was given $2.3 billion from the government’s Troubled Asset Relief Program in December. Talks between CIT and the government ended earlier this month with no further assistance being provided to the bank.

CIT has become a major lender to deals done by private equity firms operating in the mid-market. The demise of the bank could lead to a further tightening of an already troubled lending environment.

Oaktree has emerged in the past few months as a major player in the restructuring of banks and troubled companies. Recently, the firm teamed up with Dubai International Capital to restructure about $1 billion of debt held by Germany-based aluminium producer Almatis.

The firm, led by Howard Marks, was also recently selected by the US Treasury as one of nine fund managers qualified to participate in the government’s Public-Private Investment Program to help unfreeze the credit markets and stop the spread of the financial crisis.