CIT Group (NYSE: CIT) Clear Bankruptcy Hurdle, Deal With Creditors Approved

On November 1st, CIT Group Inc. (NYSE: CIT) filed for bankruptcy protection in New York State Courts. In their press release at the time, the major lender to small and medium sized businesses noted they hoped to move out of court quickly, and avoid a drawn-out fight with creditors.

Today, it seems their wish has been granted. CIT wrapped up it’s swift bankruptcy case today after a judge approved their restructuring plan, which will slash around $11 billion in debt from the firm. At the time of bankruptcy filing, CIT listed liabilities of almost $65 billion, making it one of the largest cases on record. However, their goal entering bankruptcy was made easier, having extensive support from the bondholders before filing, facilitating a quick restructuring.

CIT’s lawyers said that the plan will take effect on December 10th, and a debt for equity swap will be arranged, giving creditors new debt, along with all the common stock of the reorganized company. The payouts will be rather large comparatively, with senior unsecured debt holders receiving 70 cents on the dollar for the new debt, along with equity. Approximately 77% of the equity will go to a group of senior unsecured bondholders, who were owed $25 billion.

Judge Allan Gropper of the U.S. Bankruptcy Court in Manhattan called the creditor’s vote supporting the deal “an enormous achievement.” This achievement was not an accident though, as CIT saw the writing on the wall for many months, we’ve learned that the company had spent the months leading up to the filing negotiating with bondholders, and earning their support. So, although this was not a pre-packaged bankruptcy, having a framework in place allowed CIT to move swiftly through the process.

Judge Gropper added that he understands that some small investors will be outraged by this ruling, as they will lose their investments which may be their life savings. But the judge agreed with CIT’s position that there is no value left for shareholders, who are the last in line for a claim on assets in bankruptcy.

CIT’s main line of business in recent years had been lending to retailers and small businesses, helping them finance their inventory ahead of cash inflows from sales. Although CIT is not a major bank on a national scale, they play an important role behind the scenes for many firms, and this news will be welcomed as those stores strive to stay open, and continue to finance inventories amidst holiday season.