Sunday, October 4, 2009

Goldman Gets in Line for a Cool Billion, Ahead of the U.S. Government

Goldman Sachs stands to receive a payment of $1bn – while US government would lose $2.3bn – if embattled commercial lender CIT files for Chapter 11 bankruptcy protection, FT is reporting.

The payment stems from the structure of a $3bn rescue finance package that Goldman extended to CIT on June 6 2008, about five months before the Treasury bought $2.3bn in CIT preferred shares to prop it up at the height of the crisis.

The potential loss would be the biggest to crystalise so far from the government’s capital injection plan for banks.

The agreement with Goldman states that if CIT defaults or goes bankrupt, it “would be required to pay a make-whole amount” that totals $1bn,

While Goldman is entitled to demand the full amount, it is likely to agree to postpone payment on a part of that sum. But, this still means that Goldman will have top negotiating position, and knowing Goldman, they are likely to come out with more than a billion after negotiations.

A CIT filing last week said that it was in negotiations with Goldman “ concerning an amendment to this facility”.

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