CIT Files Bankruptcy; U.S. Unlikely to Recoup Money

According to the petition, CIT’s largest unsecured claim holders were Bank of America Corp., as collateral agent for a $7.5 billion claim, and Bank of New York Mellon Corp., as a trustee for retail bonds with a claim of $3.2 billion. Canadian senior unsecured notes have a child Inflatable Christmas
claim for $2.1 billion, and Citigroup Inc. also has a $2.1 billion claim as an administrative agent to bank debt due 2010.
‘Free-Fall Bankruptcy’

CIT, which reported $3 billion of losses in the past eight quarters, received $2.3 billion from the U.S. Treasury on Dec. 31 when it purchased preferred stock and warrants. The company wasn’t given access to the FDIC’s debt-guarantee program.


CIT had said in its Oct. 2 outline of a prepackaged plan that it would give most noteholders new notes at 70 cents on the dollar plus new common stock, compared with the range of 70 cents to 90 cents and new preferred stock proposed in the exchange offer.

CIT also said it would adult Air Dancer
try to emerge from bankruptcy two months from the date of its filing.

“We will be following developments very closely with an eye towards protecting taxpayers during the bankruptcy proceeding,” Treasury spokesman Andrew Williams said today in an e-mailed statement. “But as the company’s disclosure on the prepackaged bankruptcy makes clear, with debt holders receiving less than face value of their instruments, recovery to preferred and common equity holders will be minimal.”

CIT said the debt exchange would have given it a quicker reorganization without the cost of defaulting on loans, unwinding derivatives or fees for bankruptcy lawyers.

Icahn, who said he’s the largest bondholder with $2 billion of debt, had initially sought to block CIT’s prepackaged plan, saying bondholders would get a better deal if the company went into a “free-fall bankruptcy.” He offered to buy bonds for 60 cents on the dollar.

Dunkin’ Brands

The company tried to stave off bankruptcy with a $3 billion rescue loan from bondholders in July to see it through a cash crunch. Bondholders stepped in after CIT failed to get another U.S. government bailout or enough loans to permit an out-of- court restructuring.

CIT’s $3 billion facility, arranged by Barclays Plc, included investors led by Newport Beach, California-based Pacific Investment Management Co. and Centerbridge Partners LP in New York. Also providing financing were Oaktree Capital Management LLC and Capital Research & Management Co., both in Los Angeles, and Boston-based hedge fund Baupost Group LLC and Silver Point Capital LP in Greenwich, Connecticut.

The lender funds about 1 million businesses such as Dunkin’ Brands Inc. in Canton, Massachusetts, and Eddie Bauer Holdings Inc., the bankrupt clothing chain in Bellevue, Washington.

Smaller Borrowers

CIT has said it’s the third-largest U.S. railcar-leasing firm and the world’s third-biggest aircraft financier. It also finances trade in Canada, Europe and Asia by lending to small manufacturers that sell to retailers.

“CIT’s liens against its customers’ assets will make it very difficult for them to procure replacement financing without paying off everything owed to CIT,” said Martin J. Bienenstock, a bankruptcy lawyer with Dewey & LeBoeuf LLP in New York. “This could give new meaning to headache and chaos.”
CIT accounts for about 70 percent of all short-term U.S. financing known as factoring, worth about $40 billion a year, according to Ray Ecke, president of Credit Management Resource in Oakland, New Jersey.