CIT files for bankruptcy to restructure
- Source: Global Times
- [14:00 November 02 2009]
- Comments
CIT Group Inc., the 100-year old leading funder of small and medium-sized businesses in the US, filed for bankruptcy Sunday as part of its restructuring plan that began a few months ago.
According to its bankruptcy filing, the company’s assets were worth $71 billion with $64.9 billion in liabilities, ranking the fifth in the wake of Lehman Brothers, Washington Mutual, Worldcom and General Motors in the US history of companies filing for bankruptcy.
Currently, CIT is asking the US Bankruptcy Court for the Southern District of New York for a quick approval of the prepackaged plan, the company said in a statement, which also suggested its expectation that the reorganization of its total debt by approximately $10 billion could reduce its liquidity needs over the next three years and enhance its capital ratios as well as accelerate its return to profitability.
"The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the US economy," said CIT chairman Jeffrey M. Peek, who is expected to resign on Dec 31.
According to the statement, operations would be continued by CIT's operating subsidiaries in other states; having an additional $4.5 billion in credit obtained Oct 28 to meet clients' needs and continue day-to-day operations during the bankruptcy approval process; and a credit of $1 billion to provide supplemental liquidity. The company also said it has filed motions in bankruptcy court in order to allow for the continued payment of employees, and to pay vendors and other creditors in full.
Nevertheless, existing common and preferred stock will be cancelled due to bankruptcy protection, said CIT, indicating common shareholders as well as the US government, which had infused $2.3 billion from its Troubled Asset Relief Program (TARP) into CIT during the company's first round of restructuring, would suffer huge losses.
Before that, CIT had sought a second federal bailout in July but was rejected. Then the company got a $3 billion loan from bondholders to stave off bankruptcy. Last Friday, it reached an agreement with a prominent investor Carl Icahn, under which his hedge fund firm, Icahn Capital LP, will provide CIT with a $1 billion credit line that can be used as debtor-in-possession financing as part of the bankruptcy procedure.
Also, after having sought a loan from Goldman Sachs, CIT said in a filing with the Securities and Exchange Commission last Friday, that the two companies had struck an agreement again, under which Goldman agreed not to terminate the credit facility in the event of a CIT bankruptcy, on the grounds that CIT pay Goldman a termination fee of $285 million and post $250 million in collateral in cutting the loan to $2.125 billion from $3 billion.
