Judge Approves Reorganization Plan for CIT Group (OTC:CITGQ.PK) to Come Out of Bankruptcy Protection

Cit Group Inc. (OTC:CITGQ.PK) has received approval from a judge to exit its bankruptcy protection and implement its reorganization plan.

Formerly of the the largest lenders to small and medium-sized lenders in America, Cit Group filed for bankruptcy on the 1st of November when it couldn’t find the cash to continue operations.

The bankruptcy came about specifically from bondholders in the company refusing to swap out their existing bonds for bonds with later maturity dates, along with common stock. That rejection culminated in CIT Bank filing for bankruptcy.

Details of the plan include a debt-for-equity swap which will cut the overall debt at the company by $10.5 billion, while also deferring debt maturities for three years. Initially it looks like bondholders will receive about 80 cents on the dollar, while shareholders will receive nothing.

Although CIT will receive a new public listing, most of its business will center on trying to collect on their outstanding loans, which are now worth about $34 billion after being written down.

It is also expected that the company will attempt to migrate its business to its bank based in Utah, for the purpose of generating new business through offering loans, but it’s not clear whether the FDIC will give them approval to begin the lending again before they strengthen themselves via a stronger capital base.

Also as part of the reorganization plan, the company will make changes to its board of directors as well as hire a new CEO to replace the outgoing Jeffrey Peek, who will ‘retire’ at the end of the year. CIT Group has been searching for a replacement for Peek, and will continue to do so they said.

As far as the board changes go, five directors now on the board will remain, while seven new independent directors will be nominated by debt-holders of CIT. Also sitting on the board will be the new CEO

Taxpayers lost the $2.3 billion given the company via TARP funds when the company declared bankruptcy. CIT was eventually turned down for a second loan, which also was part of the reason for declaring bankruptcy after negotiations with bondholders failed. 

As mentioned, common or preferred stock, together with all non-reinstated debt will be canceled per the plan. Holders of debt will have 200 million shares of stock issued to them by CIT in exchange for any claims against the debtors.

CIT Group will be listed on the New York Stock exchange under the symbol CIT at the most opportune time.