CIT Files For Bankruptcy

mike lewis

• November 02 2009
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Troubled lender CIT, which works with more than one million small to mid-sized businesses, announced yesterday, November 1, that it has filed for Chapter 11 bankruptcy as part of a reorganization to shore up its outstanding debts. The bankruptcy is the fifth largest in U.S. history by assets and comes just two days after the company announced it had secured an additional $1billion credit line from Carl Icahn’s Icahn Capital.

CIT, which some estimates show handles as much as 70 percent of factored business in the action-sports industry, issued a statement yesterday asking the U.S. Bankruptcy Court for the Southern District of New York for a quick approval of the prepackaged plan and said that its operating subsidiaries would be included in the filing.

CIT says the plan has overwhelming support from its debtholders.  The plan calls for CIT to reduce total debt by approximately $10 billion, significantly reduce its liquidity needs over the next three years, enhance its capital ratios and accelerate its return to profitability.

“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,” said Jeffrey M. Peek, Chairman and CEO. “We are enormously appreciative of the extraordinary support we have received from our many constituencies. This market-based solution allows CIT to enter into the reorganization process well-prepared and positioned for a swift emergence. I want to thank our customers for their support and express my gratitude to our employees whose dedication and hard work are crucial to the future of CIT. We also acknowledge our constructive working relationship with our regulators and look forward to their continued guidance as we move through this process.”

CIT expanded its $3 billion senior secured credit facility by an additional $4.5 billion on October 28, 2009. These funds, supplemented by cash generated from operations, will allow us 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 today’s announcement, CIT has filed a number of first day motions that will 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.

CIT stock is currently trading at $.24 per share, a 66% drop on the day and a staggering plunge from the $60 range it was at just two years ago. As part of the announcement, CIT said that it would cancel all common and preferred stock after emerging from bankruptcy so you can bet the flood gates are open as people seek to dump shares.

Stay tuned for more on this story as it unfolds and pick up a copy of the November issue of TransWorld Business for an in-depth analysis of what this means to the action-sports industry.