CIT group files for US bankruptcy

The US lender, CIT Group, has filed for bankruptcy protection, after a failed debt-exchange offer to bondholders. ┬á CIT Group suffered as the credit crisis left it unable to fund itself, and the recession exposed it to many bad loans. CIT has been fighting to stay alive ever since the federal government refused to inject more cash into the small business lender, after the investing $2.33 billion in December 2008 through the Troubled Asset Relief Program (TARP). ┬á It isnÔÇÖt a typical scenario. Bankruptcy is normally the end for financial companies, or at least they cease to exist as independent companies as pieces are sold off, but CIT GroupÔÇÖs bankruptcy filing will serve as a test of whether a financial company can emerge from court protection and continue to operate. ┬á This one is a pre-packaged bankruptcy, meaning bondholders will most likely be able to recover more of their investments than they could have if the company had collapsed in a freefall.┬á The fifth biggest filing in US corporate history, CIT's bankruptcy protection filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion. ┬á The majority of bondholders have agreed to a re-organization plan that will reduce CIT's debt by $10 billion while allowing it to go on operating with creditors owning the company.┬á Most bondholders will also end up with new CIT debt worth about 70 percent of the face value of their old debt, and preferred shareholders, including the US government, will get money only after other creditors are paid back. ┬á "The decision to proceed with our plan of re-organization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the US economy," says Jeffrey Peek, CIT's chairman and CEO, who will step down by the end of the year. ┬á Many observers predict that if CIT is able to continue in business after emerging from bankruptcy protection, it will not be able to make anywhere close to the same number of loans to small businesses, which could mean that thousands of companies which are looking to raise money for investment will struggle to find the cash.┬á