CIT Group said to hire bankruptcy adviser

CIT Group Inc. is working with a premier bankruptcy firm as the troubled commercial lender awaits word on whether it will receive funds from a federal program designed to help banks, the company confirmed Saturday.

The New York-based company has engaged Skadden, Arps, Slate, Meagher & Flom LLP, which has a prominent bankruptcy practice. The hiring was first reported in The Wall Street Journal Saturday.

However, acccording to the company CIT has worked with Skadden for "several years."

"Skadden is one of the principal law firms representing CIT," company spokesman Curt Ritter said in an e-mail response to an AP query. "They represent the firm on a wide variety of corporate matters. CIT will not comment on any specific aspect of their engagement."

Skadden did not return calls for comment.

The financier to small and mid-sized businesses is facing a liquidity crisis absent help from the government, according to analysts.

Shares of CIT closed Friday down 18 percent on heavy trading volume over uncertainty over federal aid.

CIT is awaiting word on whether it will receive funds from the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program, which lets cash-squeezed companies issue government-backed bonds to raise capital at a lower cost. As of June 8, the program has backed $335.4 billion of debt.

FDIC Chairwoman Sheila Bair has said that the program tries to be inclusive but applicants must meet certain requirements. Generally, the program gives preference to companies with high credit ratings or that are considered pivotal to the overall economy. Ritter said Friday the company's application to the FDIC program remains outstanding.

On Wednesday, credit ratings agency Fitch Ratings downgraded the company's issuer default, individual and debt credit ratings deeper into junk status, affecting $35 billion of debt.

CIT already received $2.3 billion in government bailout funds in December, as part of the $700 billion rescue fund created by Congress last October. It had to convert to a bank holding company to access the money.

The lender faces maturing debt of $7.4 billion in the first quarter of 2010, plus other obligations. CIT could issue debt without government backing to help it in the near term, but it has to carry a high yield to attract investors.