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Sunday, November 1, 2009

CIT Group Applies for Chapter 11 Bankruptcy Protection

CIT files for 5th largest U.S. bankruptcy

CIT Group Inc., one of the nation's leading funders of small and medium-sized businesses, filed for the fifth largest bankruptcy by assets in U.S. history Sunday as part of a reorganization plan that has the support of an overwhelming majority of debtholders.

In a statement regarding their filing for Bankruptcy protection, CIT Group said it is asking the U.S. Bankruptcy Court for the Southern District of New York for a quick approval of the prepackaged plan. CIT said none of its operating subsidiaries would be affected by the filing, allowing them to continue operations.

"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 U.S. economy," said CIT (CIT, Fortune 500) chairman Jeffrey M. Peek.

In the bankruptcy filing, CIT Group said it had $71 billion in assets and $64.9 billion in liabilities. Only Lehman Brothers, Washington Mutual, Worldcom and General Motors had more in assets when they filed for protection.

CIT Group's position in the business world is crucial. CIT Group says it is the leading provider of factoring, a key element in the day-to-day financing of the retail industry. CIT Group's key role in shipping goods is illustrated by its statement that it is the nation's third-largest lessor of rail cars and the world's third-largest lessor of aircraft.

While the required percentage of debtholders approved the prepackaged bankruptcy procedure, CIT Group said it did not receive the required support from bondholders for a $5.9 billion debt exchange offer that would have prevented the Chapter 11 filing.

CIT Group said it expects the reorganization to total debt by approximately $10 billion, significantly reduce its liquidity needs over the next three years, enhance its capital ratios and accelerate its return to profitability.

CIT Group said an additional $4.5 billion in credit obtained Wednesday will allow it to meet the needs of its clients and continue day-to-day operations during the bankruptcy approval process. CIT Group said it has also obtained an additional $1 billion in credit to provide supplemental liquidity.

CIT Group also said it has filed motions in the bankruptcy court to allow for the continued payment of employees, and to allow the company to pay vendors and other creditors in full.

Common shareholders, however, will be out of luck. CIT Group said all existing common and preferred stock will be cancelled upon emergence from bankruptcy protection. That would likely include preferred stock from the $2.3 billion in funding from the U.S. government's Troubled Asset Relief Program (TARP) CIT Group received in its efforts to stay afloat.

CIT Group sought a second federal bailout in July but was rejected. CIT Group was then able to get a $3 billion loan from bondholders in order to stave off bankruptcy -- at least for a little while.

CIT Group shares were trading at 64 cents after hours Friday, having closing at 72 cents during regular trading hours. CIT Group stock traded above $60 as recently as 2007.

On Friday, CIT Group reached an agreement under which Carl Icahn, a prominent investor who had opposed CIT Group's efforts to re-organize. Icahn's hedge fund firm, Icahn Capital LP, will provide CIT Group with a $1 billion credit line.

The credit line can be used as debtor-in-possession financing as part of the bankruptcy procedure.
Separately, CIT Group said in a filing with the Securities and Exchange Commission on Friday that it had struck an agreement with Goldman Sachs (GS, Fortune 500) to change the terms of a loan it had originally sought from the Wall Street firm in June.

In reducing the size of the loan to $2.125 billion from $3 billion, CIT Group will pay Goldman a termination fee of $285 million and will post $250 million in collateral.

In return, Goldman agreed not to terminate the credit facility in the event of a CIT Group bankruptcy. Prior to Friday's announcement, Goldman Sachs was poised to collect $1 billion when CIT Group filed for bankruptcy, according to reports.

Source CNN

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