CIT Group is among the largest corporate bankruptcies on record with $71 billion in assets and nearly $65 billion in liabilities, though it is dwarfed when compared to likes of the Lehman Brothers and Washington Mutual. The company said in its bankruptcy petition that it had $800 million in bonds maturing from Sunday through Tuesday.
Three months ago, the CIT Group barely averted what it considered to be a ruinous bankruptcy filing that would likely have put the 101-year-old lender out of business.
On Sunday afternoon, the company filed for Chapter 11 — but under a so-called prepackaged bankruptcy plan that will enable it to emerge from court protection by the end of the year. (Read the filing after the jump.)
Sunday’s filing, made in a Manhattan federal court, caps months of efforts by CIT to stay alive. After being denied another bailout by the federal government, the company bargained with its creditors over a restructuring plan that would keep it operating and slash its heavy debt load, including $30 billion in bond debt.
The current filing becomes more important as it will test waters around the notion of whether a financial company can survive the Chapter 11 process. The struggle to survive has been under close scrutiny by various industry analysts and stakeholders. The group benefitted from the government bailout plan last year when it received $2.3 billion that came in the form of preferred stock. The benefit will certainly be wiped out in the current process and would also mean the first definitive loss in the government’s rescue of the financial system.
Jeffrey M. Peek, the company’s chief executive who had tried to move the firm from its small league playing turf of lending to industrial customers to a larger ground of being a complete financial player will step down by the end of the year.
As for the investors, the bondholders are set to receive about 70 cents on the dollar through the prepackaged bankruptcy, though the company warned that investors could receive as little as 6 cents on the dollar in the alternative, a free-fall bankruptcy that lacked a pre-approved reorganization plan.
CIT said in a statement that about holders of about 85 percent of its $30 billion in bond debt participated in the voting. Those investors voted almost unanimously to support the prepackaged bankruptcy plan.
The investment bank Evercore Partners, the law firm Skadden, Arps, Slate, Meagher & Flom and the turnaround consulting firm FTI Consulting will represent CIT in its bankruptcy filing.