CIT Group Inc., the commercial lender turned to retirees for debt financing. CIT sold $827 million of debentures designed specifically for individuals between December 2007 and March 2008. At the time, “disruptions” in credit markets led to “the loss of access” to unsecured debt markets, “historically significant sources of liquidity for the company,” the New York-based company said in a July 21 regulatory filing.
It turns out the professionals were right to stay away. The 101-year-old lender said last month it may go bankrupt after $5 billion of losses in the past nine quarters. Retired salesman Sam Pons of Metairie, Louisiana, said he bought $220,000 of the notes through a broker in February 2008 at 100 cents on the dollar. The securities have since tumbled to as low as 44 cents.
“I was kind of naïve,” said Pons, 63. A month after buying, “the whole news came alive with CIT Group’s problems. I’ve sat on this for a year and a half now with my heart in my throat hoping they survive.”
CIT joined GMAC Inc., Prudential Financial Inc. and more than a dozen other companies that tapped individuals as credit markets closed to them through underwriters led by Chicago-based Incapital LLC. The Financial Industry Regulatory Authority now says it’s investigating whether the risks associated with the securities were adequately disclosed.
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