CIT Group Files for Bankruptcy Protection

(AP)  After struggling for months to avert bankruptcy, lender CIT Group has filed for bankruptcy protection in an attempt to restructure its debt while trying to keep badly needed loans flowing to thousands of mid-sized and small businesses.

CIT made the filing in New York bankruptcy court Sunday, after a debt-exchange offer to bondholders failed. CIT said in a statement that its bondholders overwhelmingly opted for a prepackaged reorganization plan which will reduce total debt by $10 billion while allowing the company to continue to do business.

The bankrupcty protection filing is one of the biggest in U.S. corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors. CIT's bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion.

A prepackaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT's debt and could allow it to exit court protection by the end of the year. In addition to reducing its debt, CIT said the plan cuts cash needs over the next three years, which should help it return to profitability more quickly.

"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 Jeffrey M. Peek, chairman and CEO. Peek has said he plans to step down at the end of the year.

CIT's move will wipe out current holders of its common and preferred stock. That means the U.S. government will likely lose the $2.3 billion it sunk into CIT last year in return for preferred shares to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.

Treasury Department spokesman Andrew Williams said the government will be closely monitoring the bankruptcy proceedings, but acknowledged that "recovery to preferred and common equityholders will be minimal."

Common stockholders set to lose their investment include FMR LLC of Boston with a 9.9 percent stake in CIT and San Diego-based Brandes Investment Partners LP with a 9.7 percent equity position, according to CIT's filing.

CIT has been trying to fend off disaster for several months and narrowly avoided collapse in July. It has struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis.

The company received $4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments, and negotiated a $1 billion line of credit from billionaire investor and bondholder Carl Icahn. But the company failed to convince bondholders to support a debt-exchange offer, a step that would have trimmed at least $5.7 billion from its debt burden and given CIT more time to pay off what it owes.

Analysts warned that the bankruptcy could add to the uncertainty around loans for the nation's small businesses, especially retailers, which make up a significant portion of CIT's clients and are already struggling with tight credit markets.

CIT is the financier for about 2,000 vendors that supply merchandise to more than 300,000 stores, many of which are gearing up for the critical holiday shopping season. They rely on the lender to cover costs ranging from paying for orders to making payroll. Any disruption caused by bankruptcy could wreak havoc on their operations, Joe Alouf, a partner with Eaglepoint Advisors, a crisis management company that is partly owned by Kurt Salmon Associates.

"CIT is the 600-pound gorilla in the industry," Alouf said.

But CIT has already pulled back sharply on its lending to businesses as it tried to preserve cash. According to its most recent quarterly earnings report, the company originated just $4.4 billion worth of new business during the first six months of 2009 compared to $11.3 billion in the first half of 2008.

CIT said Sunday the bankruptcy filing is only for the holding company, and won't affect its operating subsidiaries, such as Utah-based CIT Bank. CIT has filed a number of first-day motions to allow it to continue operations, including requests to keep paying wages and other employee benefits and to pay its vendors and certain other creditors in full.

The company has retained Evercore Partners and FTI Consulting as its financial advisers and Skadden, Arps, Slate, Meagher & Flom LLP as legal counsel in connection with the restructuring plan and Chapter 11 cases.

Houlihan Lokey Howard & Zukin Capital Inc. serves as financial adviser, and Paul, Weiss, Rifkind, Wharton & Garrison LLP serves as legal counsel to the bondholders' committee.


Top 10 bankruptcies in U.S. history

CIT Group's filing for Chapter 11 protection is the fifth-largest in U.S. history. Here are the top 10 U.S. bankruptcy filings, based on the companies' most recent annual report before filing for bankruptcy protection, according to BankruptcyData.com.

(Company, Bankruptcy Date, Assets)

-Lehman Brothers Holdings Inc., Sept. 15, 2008, $691.06 billion

-Washington Mutual Inc., Sept. 26, 2008, $327.91 billion

-WorldCom Inc., July 21, 2002, $103.91 billion

-General Motors Corp., June 1, 2009, $91.05 billion-x

-CIT Group Inc., Nov. 1, 2009, $71 billion

-Enron Corp., Dec. 2, 2001, $65.50 billion

-Conseco Inc., Dec. 17, 2002, $61.39 billion

-Chrysler LLC, April 30, 2009, $39.30 billion

-Thornburg Mortgage Inc., May 1, 2009, $36.52 billion

-Pacific Gas and Electric Co., April 6, 2001, $36.15 billion

x-GM listed $91.05 billion in assets in its annual report as of Dec. 31, 2008, but listed $82.29 billion in assets as of March 31, 2009, in its bankruptcy petition.

[CompletelyFrustrated]

This is oatheic - CIT has repeated screwed the public!

Their big wigs get piles of bonus money and we get to pay, and pay and pay, oh and pay some more for their negligence!

Kudos to Ford for effectively managing their business!

[pjk12354]

So, both Republicans & Democrats were behind all the government bailouts........and many companies still failed.

Notice what Ford did........they refused government help........and this week posted a profit.

Our government is totally wrong when it says that some companies are too big to fail.........it means that our government, Republicans and Democrats, are not in touch with reality anymore........just their own special interests.

[bubbadubba]

Next we will be bailing out universities just like CIT and Wall Street firms.
Life was really good under GW Bush and friends, for the top people that is. Just like in the old Soviet Union.
I told you Republicans are old style communists which is why the bailed out their rich friends like CIT in 2008 and why the "elite" in the system got paid so far out of line with everyone else. Identical to the Soviet Union.

"The fast-growing group of millionaire private college and university presidents hit a new record in recent years, and it's likely more college leaders will make seven-figure salaries once the slumping economy rebounds.

A record 23 presidents received more than $1 million in total compensation in fiscal 2008, according to an analysis of the most recently available data published Monday by the Chronicle of Higher Education."

[bubbadubba]

So how about trashing President Obama?
C'mon Hannitones and Limbetts, you can do it!
Let's pretend Obama was President last year when they got bailed out and let's all pretend he gave them more money this year and will give them more money, then you can trash Obama and blame him once again for making the right decisions and blame him for Republican corruption and stupidity.
It's fun to pretend, reminds me of when I was a little kid.
I love right wing Republican racist fantasy games, don't you?

[novamba]

The libs had no problem blaming bush for the intelligence lapses that led to 9/11. If you cant see that both parties fail to act in our best interest then you are a sheep and deserve this joke of a government, which is so far, no better than our last.

[STBY21]

This is going to suck. Many have talked about this bankruptcy for a while and the possible effects it will have. If the credit crisis stunk before it is really going to be bad now unless the government starts freeing up even more money to make those loans to small businesses. This will kill a recovery, and then toss in the last cycle of adjusting ARMs and it will get worse than it has been. Hopefully that last round of ARMs won't push banks on the brink of failure over the edge.

[payback108]

Well round two started sooner then I though the next ARM loans will be coming in to play soon thats win the real party starts.

[mljohns00]

Hmmm... I wonder why all ten of the "biggest bankruptcies in U.S. history" were all during (or shortly after) the G.W. Bush administration?

[azfalcon]

Because both houses of Congress were under the control of the democrats. Every time we get four (or more) years of democrats in power in both houses of Congress we get an economic crapper - irregardless of which party is in the White House.

[stn_sage]

Let a couple of the banks that were given bailout money the first time...and who are hoarding it...combine their bailout monies...and bail these guys out!

OR, let'em fall! It's time to cease the 'too big to fail policy'...it's bogus! F'em!

[spaceatoms]

Its time for another bailout, nobody bailed out my business, but hey this one is more important as stocksholders are more important than owners. I am all for it, again in America if you lose then you win because of the bailout; meanwhile I'll just eat some prunes! Now the setup statement and now the punch line, whatever, you might as well say nothing!

[missme4]

HAHAHA I knew CIT would be flushed. Sorry stock holders. You're screwed!

[John_Merritt]

Be careful what you ask for, because they are an important cog in the formulation of small and medium size businesses, not only in creation but in growth. This company was a behemoth to begin and should have been split apart a long time ago, but for some unknown reason we kept pouring good money into bad management.

Now it is up to the big banks to become lenders of note to many companies, and we already know what their policies and practices have been over the last year. They are holding onto their money until they are certain it is safe to lend again. Why? Because there is no clear cut direction so far in the economy as to what the short, medium and long term investments will be.