CIT Group files for bankruptcy today

Escrito el 2 Noviembre 2009 por Antonio Rivela Rodríguez en Uncategorized

Unluckily as I forecasted many moons ago, it did happen at the end… CIT Group is down.

Financial Times has just reported that CIT Group, the troubled US commercial lender that has been in business for more than a century, on Sunday filed for bankruptcy after attempts at a restructuring or bail-out failed.

See below for Financial Times article…

In a statement, CIT said it had asked the bankruptcy court to quickly confirm its prepackaged bankruptcy plan, which has broad support from its debtholders and on Friday received backing from Carl Icahn, the billionaire investor.

r Icahn, who had been critical of the CIT plans, has agreed to provide a $1bn line of credit. The company said it would aim to emerge from bankruptcy by the end of the year.

Under the plan, the lender, which has $71bn in assets, said it expected to cut debt by about $10bn, reduce liquidity needs over the next three years and boost its capital ratios. Some bondholders would receive a mixture of new debt and equity with others getting only equity.

The US government’s $2.3bn capital injection made in December is likely to be wiped out.

There is a provision to repay the money if there is a surge in the value of CIT after the bankruptcy plan is completed; however the chance of the Treasury being repaid was described by people involved as “a long shot”.

The filing comes after stock markets closed in a jittery mood last week. The S&P 500 stock index lost nearly 2 per cent in October, its first monthly decline since February. Investors are nervous about whether the signs of economic growth will lead to lasting recovery, or whether there will be another dip in the economy.

CIT’s filing does not include any of its operating subsidiaries, such as CIT Bank, a Utah-based bank. People involved in the deal said this meant the lender was more likely to hold on to its customers, as they would not experience any impact from the bankruptcy filing.

CIT is a big lender to retailers and small businesses in the US but it ran into problems after wading too far into risky businesses such as subprime mortgages and student lending. Its reliance on financing from the bond markets created problems when access to such debt dried up after the bankruptcy of Lehman Brothers.

Consolidation in the banking industry and continued reluctance by banks to lend has made access to new credit difficult for small companies in particular. CIT has been working for months to reach agreement with bondholders in an attempt to restructure its $30bn debt.

Operating units of CIT received $3bn in rescue finance from a small group of investors at the end of July and a $4.5bn secured financing facility more recently from a much broader group of the company’s creditors.

Creditors have said they plan to install a new management team soon.


C Todd Lombardo 10 Noviembre 2009 - 23:08

The US could have saved $2.3bn and not “injected” the bank with any capital. As an American, I find it a bit difficult to swallow seeing such large sums of money being paid to a bank which does not turn it into any kind of return for the American people.

I wonder which bank is next?

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