Just two weeks after announcing major debt restructuring plans in an effort to avoid bankruptcy proceedings; CIT Group (NYSE: CIT) announced it has filed for Chapter 11 bankruptcy protection. The lender received overwhelming support from its debt holders in regard to the move that aims to reduce debt by about $10 billion.
The filing was made in a Southern District of New York Bankruptcy Court on Sunday. CIT had put together a prepackaged reorganization plan some weeks back for debt holders to pre-approve in case a Chapter 11 filing was needed. The lender received about a 90 percent vote affirming the move.
CIT has asked the court for a quick confirmation of the approved reorganization plan, which aims to reduce liquidity needs over the next three years and improve capital ratios as it works toward returning 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, in a press release. “We are enormously appreciative of the extraordinary support we have received from our many constituencies.
The filing will effectively eliminate the value of CIT’s preferred and common stock. The U.S. government will likely lose the $2.3 billion it provided the bank in aid in return for common stock.
According to CIT’s press release, the company has filed a number of motions along with the bankruptcy action. These motions include requests to continue the payment of wages, salaries and other employee benefits.
The debt restructuring actions CIT took back in mid-October remain effective and were in place by October 28. They include; a $4.5 billion expansion to a senior secured debt facility that will allow the lender to meet daily operating obligations during the bankruptcy reorganization process, as well as a $1 billion committed line of credit from bondholder Carl Icahn.
In the filing, CIT listed financing and leasing assets totaling roughly $70 billion, while claiming total debt just shy of $65 billion.