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Despite insolvency warnings, analysts said bondholders will likely reject the poor terms of CIT Group Inc.'s recent tender offer for floating-rate notes due Aug. 17, and a subsequent bankruptcy is not necessarily in the cards.
In a Form 8-K filed July 24, CIT increased the incentive to tender early by raising the additional payment to $50 from $25 per $1,000 principal amount. Even so, CreditSights analyst Adam Steer said bondholders would be better off holding for par rather than the $825 per $1,000 purchase price in the tender offer.
According to Janney Montgomery Scott fixed-income strategist Guy LeBas, the difference in yield between a bond that matures at par versus one that matures at 82.5% is considerable, and most bondholders should expect to sell the notes for 90% of par or higher.
"They've traded at or above that tender price pretty consistently for the last week, which tells you can earn more by selling it in the market than tendering," LeBas said. "So why would you execute that tender?"
Calling the...