July 24 (Bloomberg) -- CIT Group Inc., the commercial lender seeking
to avoid collapse, may sell units that lease railcars and aircraft to
raise cash, said a person with knowledge of its plans.

The railcar business is the most likely to be sold, and CIT has
identified about a half dozen potentially interested bidders, the
person said, speaking on condition of anonymity because the talks are
private. No final decisions on which units will be kept or sold have
been made, the person said. CIT put the unit up for sale last year,
only to take it off the market when bids came in below expectations,
the person said.

CIT Chief Executive Officer Jeffrey Peek is fighting to keep
bankruptcy at bay after lining up a $3 billion rescue loan from
bondholders when his normal sources of funding dried up. Denied a U.S.
government bailout, the 101-year-old lender is weighing asset sales as
it seeks to persuade bondholders to participate in a debt swap next
month to reduce its outstanding obligations.

Earlier this year, Warren Buffett’s Berkshire Hathaway Inc. and
Leucadia National Corp. bid for parts of CIT and were rebuffed, the
Wall Street Journal reported yesterday.

Curt Ritter, a CIT spokesman, declined to comment. CIT funds about 1
million businesses from Dunkin’ Brands Inc. in Canton, Massachusetts,
to Eddie Bauer Holdings Inc., the bankrupt clothing chain in Bellevue,
Washington. The firm was founded in 1908 and was once known as
Commercial Investment Trust.

Aircraft Leasing

CIT’s railcar leasing operation is the third-largest in the U.S., with
over 116,000 railcars, according to CIT’s Web site. The aircraft-
leasing business, with about 300 aircraft, is also the third-largest,
behind General Electric Co. with 1,500, and the 980 held by
International Lease Finance Corp., a unit of American International
Group Inc.

General Electric offered a loan to CIT of at least $2 billion secured
by aircraft, people with knowledge of the matter said on July 21. CIT
rejected the offer in favor of the $3 billion loan from a group of
bondholders.

Before the global financial crisis struck in 2007, CIT relied in part
on issuing unsecured debt in the capital markets to fund its
operations. That source of funding has dried up, and CIT drew down
credit lines from its lenders and became a bank last year in a bid to
qualify for federal help.

On July 15, CIT said talks with federal regulators had ended without a
rescue. Instead, CIT negotiated a $3 billion loan from some of its
biggest bondholders to buy time while it tries to restructure its debt
outside of bankruptcy.

Debt Swap

Bondholders including Pacific Investment Management Co. that provided
the loan got a 5 percent fee for the first $2 billion of the rescue,
and annual interest of at least 13 percent. On top of that, the New
York-based company pledged assets worth more than five times the
amount of the loan as collateral.

In the debt swap, holders of $1 billion of floating-rate notes due
Aug. 17 are being asked to accept 82.5 cents on the dollar for the
debt.

Advisers to the bondholders that provided the financing may push the
company into Chapter 11 bankruptcy after the debt swap, according to
people with knowledge of the matter.

“Plan A is to get the tender offer successfully closed and promptly
complete exchange offers out of court,” Jeffrey Werbalowsky, chief
executive officer of bondholder adviser Houlihan Lokey Howard & Zukin,
said yesterday in an interview. If that fails, “of course we have plan
Bs,” he said.

The August notes fell below the tender-offer price yesterday, dropping
4.4 cents to 79.4 cents on the dollar, according to Trace, the bond-
price reporting system of the Financial Industry Regulatory Authority.
CIT’s $500 million of 4.125 percent notes maturing in November fell
1.5 cent to 60 cents on the dollar, Trace data show.

To contact the reporters on this story: Christine Harper in New York
at [email protected]; Zachary R. Mider in New York at
[email protected]