Troubled lender CIT Group Inc. (CIT) has filed for Chapter 11 bankruptcy protection. The company said on Sunday that its Board of Directors voted to proceed with the prepackaged plan of reorganization for the company and a subsidiary that would restructure its debt and streamline its capital structure. None of the company's operating subsidiaries, including the CIT Bank, will be included in the filings. All operating entities are expected to continue normal operations during the pendency of the cases.
According to the company, all classes voted to accept the prepackaged plan. About 85% of the company's eligible debt participated in the solicitation, and nearly 90% of those participating supported the prepackaged plan of reorganization.
CIT said its debtholders overwhelmingly supported the plan. About 90% of the debtholders voted cast affirmative votes for the prepackaged plan, it said. The conditions for consummating the exchange offers were not met.
Accordingly, the company's Board of Directors approved to proceed with the voluntary filings for CIT Group Inc. and CIT Group Funding Company of Delaware LLC with the U.S. Bankruptcy Court for the Southern District of New York. The company expects to emerge from bankruptcy by the end of the year.
CIT's is the fifth-largest bankruptcy filing in U.S. history by assets, trailing only Lehman Brothers Holdings Inc. (LEHMQ.PK), Washington Mutual Inc. (WAMUQ.PK), WorldCom Inc. and General Motors (MTLQQ.PK).
The company has asked the court for a quick confirmation of the approved prepackaged plan, under which CIT expects to reduce total debt by about $10 billion, apart from significantly reducing its liquidity needs over the next three years, enhancing its capital ratios and accelerating its return to profitability.
CIT has $20 billion in debt, which is due through 2012, including $1.4 billion due this year.
CIT historically has specialized in financing for retailers and other forms of secured lending, but ventured in recent years into subprime and commercial lending, which landed it in trouble. The company received a $2.3 billion capital infusion from the federal government in December, under the Troubled Asset Relief Program or TARP, after it was granted a bank holding company status.
Although the company sought additional help from the government, the Obama Administration declined help to the lender, saying it had set high standards for granting aid to companies, leaving private investors as the lone alternative for the company to avoid a collapse.
CIT was also refused access to the Federal Deposit Insurance Corp.'s debt-guarantee program in July. CIT said in September that there is substantial doubt about the company's ability to continue as a going concern. The company reported net losses since the second quarter of 2007, totaling more than $5 billion in losses over the past nine quarters, due primarily to deteriorating economic conditions.
Concerns over the 101-year-old company's liquidity have mounted recently after the financial crisis cut off the company's access to the corporate bond market and as its application to gain access for funding under the FDIC's debt-guarantee was not approved. CIT has relied upon secured funding markets for liquidity since March 2007.
According to Jeffrey Peek, Chairman and CEO of the company, "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."
Under the proposed prepackaged plan of reorganization, all existing common and preferred stock will be canceled upon emergence.
CIT said last week that it obtained an additional $4.5 billion credit facility to its existing $3 billion senior secured credit facility from various lenders, including many of the company's bondholders. The development brought an end to the dispute between the company and billionaire investor Carl Icahn regarding the term loan.
The company said on Sunday that these funds, supplemented by cash generated from operations, would allow it to meet clients' needs and to satisfy customary obligations associated with the daily operation of its businesses during the confirmation process. CIT has also secured an incremental $1 billion committed line of credit to provide supplemental liquidity as it pursues that plan.
In conjunction with the latest announcement, CIT filed several first day motions that would allow it to continue to operate in the ordinary course during the confirmation process. These motions include requests to continue the payment of wages, salaries and other employee benefits. Additionally, the company filed a motion seeking the necessary relief from the court to pay its vendors and certain other creditors in full.
Regarding the treatment of securities in offers and solicitations, the company said the original CIT Group Inc. offers launched on October 1 have expired. Securities tendered in these offers will be released into their original CUSIP numbers as soon as practicable, it added.
CIT further said that securities tendered in connection with offers that have not yet expired, certain long-term notes maturing after 2018 and the Delaware Funding offers, are being retained in the CUSIP numbers for those offers. However, these securities can be withdrawn from the offers and returned to the original CUSIP number for trading. Any withdrawn securities can be re-tendered until the expiration date.
Evercore Partners and FTI Consulting are the company's financial advisors and Skadden, Arps, Slate, Meagher & Flom LLP is legal counsel in connection with the restructuring plan and Chapter 11 cases.
Sullivan & Cromwell advised CIT's Board of Directors on the restructuring plan and will act as legal counsel to CIT on certain corporate matters.
Houlihan Lokey Howard & Zukin Capital, Inc. provides financial advice, and Paul, Weiss, Rifkind, Wharton & Garrison LLP serves as legal counsel to the Lender Steering Committee.
CIT closed Friday's last trade on the New York Stock Exchange at $0.72, down $0.23 or 24.21%, on 155.44 million shares, compared to 3-month average volume of 88.98 million shares.
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