Investors in Finova Group got some good news Thursday when GE Capital and Goldman Sachs Group signed a letter of intent with Finovas creditors to supply about $7 billion toward a bankruptcy restructuring for the troubled finance company, but some observers say this might not be enough to revive the Scottsdale, Ariz., company.
This was the second letter of intent offered by the financial services unit of the General Electric Co. and Goldman to creditors of Finova Group; they previously had offered $2 billion. And the second offer trumps a joint bailout proposal from Warren Buffetts Berkshire Hathaway and Leucadia National Corp. for $6 billion, which had been approved by Finova management. 
But even though shares of the company soared an incredible 41.5% in intraday trading Friday after the latest offer, some observers remained skeptical. None of the bailout proposals has done anything to breathe life back into the companys balance sheet, said Stephen G. Moyer, director of research at Imperial Capital LLC, a Beverly Hills boutique firm that specializes in distressed securities.
Since none of the proposals [to Finovas creditors] to date imply a fundamental improvement in Finovas balance sheet, I dont see how it emerges as a competitive commercial lender, Mr. Moyer said. Down the road, Finova may even cease to exist if the bailout companies start dismantling it.
Finovas creditors got the $6 billion offer from Berkadia LLC, a company created to make the bid backed by Berkshire Hathaway and Leucadia in late February, after the original offer from GE Capital and Goldman Sachs. The Berkadia deal required Finova to file for bankruptcy, which it did May 7. Finova had started to founder last year after the failure of several clients.
On Thursday GE Capital and Goldman Sachs said they would enter into a servicing agreement to manage the companys assets.
This transaction is designed to take full advantage of GE Capitals recognized breadth and depth in financial products and services, said Denis Nayden, chairman and chief executive officer of GE Capital, in a statement. Our experience as asset and portfolio managers, together with our understanding of Finovas business lines, makes GE Capital a preeminent source to realize the most value from this property.
Kathy Shanley, an analyst at Gimme Credit Publications in Wilmette, Ill., wrote in a note Friday, One of the sore points of the Berkadia proposal has been that Berkadia would pocket a minimum rate of 9% on its senior loans, whereas unsecured credits would get a lower rates.
Chaim J. Fortgang of the law firm Wachtell Lipton Rosen & Katz, who was critical of Mr. Buffetts proposal, endorsed the new offer by GE Capital and Goldman Sachs. Well try to do due diligence, he said.
Though GE Capital would not disclose the details of its proposal, company spokesman John Oliver said, Finova is one of the largest business bankruptcies in the U.S. There is a great deal of value in that portfolio. And it is the economics in the deal combined with GE Capitals expertise that will make the companys attempt to restructure Finova successful, he added.
Goldman Sachs declined to comment, but Imperial Capitals Mr. Moyer said that the investment banks likely interest in the deal is to assist in the asset liquidation process.
That, of course, would mean that Finova would cease to exist, and GE Capital and Goldman Sachs would walk away with a portfolio of assets, which some consider undervalued.
However, the stock market reacted with great enthusiasm on the latest offer. Shares of Finova, which had fallen from a high of $61 in February 1999 to less than $1 last December, jumped 19.7% on Friday. The shares, however, had been climbing back since they hit their low in December.
All equity analysts have dropped coverage some late last year, some immediately after the bankruptcy filing.
But David B. Sochol of Legg Mason Wood Walker, who last rated Finova underperform, described GE and Goldman Sachss offer as attractive, though he said Berkshire Hathaways Mr. Buffett may well dig deeper based on the resources he has allocated to Finova thus far.
To Mr. Sochol, none of this makes for a buying opportunity in Finova shares. This is still a highly speculative stock, he said. Considering that bondholders will always have the priority in bankruptcy situations, Mr. Sochol said, he was surprised by the markets reaction Friday.
David Breitkopf contributed to this story.
