CIT Group Inc. (NYSE: CIT) on Sunday filed for Chapter 11 bankruptcy protection. CIT's filing is the fifth largest bankruptcy in U.S. history, behind Lehman Brothers Holdings Inc. (OTC: LEHMQ), Washington Mutual Inc. (OTC: WAMUQ), WorldCom Inc., and General Motors Corp.
But unlike Lehman Bros. and Washington Mutual, which were completely broken apart and branches of their businesses sold off, CIT expects to wipe out $10 billion in unsecured debt and emerge from its bankruptcy with its core business intact.
"None of CIT's operating subsidiaries, including CIT bank, will be
included in the filings," the company said in a statement. "As a result, all operating entities are expected to continue normal operations during the pendency cases."
Still, it's likely that all of CIT's common shareholders will be wiped
out and the U.S. Treasury Department said it won't recoup much, if any, of the $2.33 billion of taxpayer money it lent the lender through the Troubled Asset Relief Program (TARP). The company said in an Oct. 2 regulatory filing that common shareholders would own just 2.5% of the reorganized company.
CIT's bondholders will be the biggest beneficiaries of the bankruptcy.
It's possible that they will receive new notes at 70 cents on the dollar, as well as new common stock, according to CIT Chief Executive Officer Jeffrey Peek. The bankruptcy filing had the support of 90% of creditors who voted on it.
Those bondholders include Oaktree Capital, Centerbridge, Silver Point Capital, Capital Research and Management, and Pacific Management Company, who in July came through with $3 billion in financing to keep prop up CIT, which was edging toward bankruptcy at the time.
After the Treasury Department refused the company's pleas for another capital infusion, CIT attempted to circumvent bankruptcy by arranging a bond exchange offer. However,
the company failed to persuade its bondholders to swap $30 billion in debt.
Following that effort, billionaire investor Carl Icahn attempted to drive the company
into liquidation with a bond exchange offer of his own. But on Friday, CIT announced Icahn would support its reorganization plan with $1 billion in secured financing.
Icahn's contribution will help CIT continue lending to its clients, which
include Dunkin Brands Inc. and Eddie Bauer Holdings Inc. (OTC: EBHIQ). These companies and as many as 2,000 vendors supplying 300,000 retailers would have been negatively affected by a total collapse of CIT.
CIT listed $71 billion of assets and $65 billion of liabilities in its bankruptcy filing. The company expects to emerge from bankruptcy in about two months.
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