By Chris Gillick
This past July, just when it seemed like the credit crisis had passed and the financial system had regained its footing, along came CIT Group and a new bag of trouble.
Wall Street had turned off the spigot of cheap, unsecured borrowing for the middle-market lender. Meanwhile, the company had reconfigured as a bank holding company in order to qualify for Troubled Asset Relief Program funds. CIT quickly went through some $2.3 billion in government aid. With $1 billion of floating rate senior notes coming due, and the clock ticking, the outlook for the company appeared grim. Eventually, the government would deny the company a second bailout. Bankruptcy was imminent. CIT's stock plunged.
But the firm's summertime blues turned into one of the year's biggest paydays for event-driven and distressed hedge funds, both for large players and smaller, more nimble ones. With a capital structure as large...