Tuesday, July 21, 2009

Damn it feels good to be a banker

When faced with insolvency, a bank's (CIT) board desperately clutches for any help it can get, even at usury rates:

"The Credit Facility has a two and a half year maturity and bears interest at LIBOR plus 10%, with a 3% LIBOR floor, payable monthly. It provides for (i) a commitment fee of 5% of the total advances made thereunder, payable upon the funding of each advance, (ii) an unused line fee with respect to undrawn commitments at the rate of 1% per annum and (iii) a 2% exit fee on amounts prepaid or repaid and the unused portion of any commitment."

The breakdown is as follows:

Upfront fee: 5% of $3 billion = $150 million
Advance/funding fee: 1% of $3 billion = $30 million
Exit fee: 2% of $3 billion = $60 million

Plus Libor + 10% (Libor is currently <.5%) so the total comes out to about 13% + a 5% fee. I believe other bondholders are being required to subordinate as well. I'm guessing this is reserved up the wazoo because CIT will just be in the same position when their next round of bond maturities hits. However things go with CIT, the banks are going to make money.

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