CIT Group (CIT) intends to file for bankruptcy protection in New York within days, perhaps as early as Sunday, the WSJ reports, citing people familiar with the matter.
The filing, which was overwhelming approved by creditors in support of a prepackaged bankruptcy protection and comes as a consequence of the lender’s inability to obtain the required number of consents for its exchange offer, is aimed at lowering the firm’s liabilities and keeping it in business.
The creditors support of the co.’s prepack bankruptcy plan will affect only the holding company and one finance unit, and involves giving bondholders new debt worth 70% of the face value of their old debt, plus giving them an ownership stake in the co. equal to about 92.5% of the common stock.
The creditors support also includes that of billionaire investor Car Icahn who last week was pushing for CIT to stop making new loans and instead collect money from its existing loans and use the funds to pay off creditors. Mr. Icahn said he changed his mind on the prepackaged bankruptcy plan because he was pleased by changes the company made, including the acceleration process adopted by the CIT for appointing new directors.
“These changes significantly improve corporate governance and cash flow protections, and are positive for the company and all noteholders,” he said in a statement.
The below interview by FBN with Mr. Icahn should bring some clarity on his plans:
Worth noting here that in return for Mr. Icahn’s support for the plan, CIT obtained a $1 billion line of credit from Icahn Capital LP — which could be drawn as DIP financing in the event of a bankruptcy — to provide supplemental liquidity for CIT as it pursues its prepackaged plan.
The pre-packaged deal means passage through the bankruptcy court is now expected to be swift with the company emerging as soon as the end of the year.
With more than $70 billion in assets, CIT would be the fifth-largest bankruptcy filing in U.S. history, trailing only those of Lehman, WaMu, Worldcom, and GM. CIT’s Utah bank, note the Journal, which has about $10 billion in assets, wouldn’t be part of the bankruptcy filing.
One likely loser from a bankruptcy would be the U.S. Treasury. The $2.3 billion in TARP money injected late last year by the regulator to help stabilize the incompetently run lender, which was weighed down by billions of dollars of bad student loans and subprime mortgages, is likely to be wiped out.