Goldman Sachs to Score One Billion Payday if CIT Fails

October 5, 2009

(ChattahBox)—In a sign that the commercial real estate industry is indeed in trouble, the major commercial lender CIT is facing a Chapter 11 bankruptcy restructuring, unless the bank can pull off a last ditch debt exchange offer deal. And as always, the investment firm Goldman Sachs stands to come up on top, while the American taxpayers lose once again.

In the event CIT fails, Goldman stands to gain a “make-whole” payment from the beleaguered bank of one billion dollars, stemming from the contractual terms of a $3 billion loan made last year to CIT.

The rescue loan was made about five months before the U.S.Treasury bailed out the lender by purchasing $2.3 billion in CIT preferred shares. If CIT goes under, the American taxpayers would lose the entire $2.3 billion investment.

But Goldman Sachs protected its back. The terms of the deal with CIT requires CIT to pay Goldman a make whole payment totalling $1 billion, in the event the lender defaults on the loan or files for bankruptcy.

Additionally, Goldman further protected its investment, by purchasing credit default swaps that would come due upon a CIT failure. A Goldman spokesperson claimed the credit insurance was not a “directional ‘bet’ on CIT,” but rather protection against a decline in collateral.

A CIT filing revealed the lender plans to renegotiate the terms of the “make-whole” payment agreement with Goldman, as the bank attempts to survive its latest crisis.



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