NEW YORK --- Struggling CIT Group Inc. has launched a debt restructuring effort it hopes will trim at least $5.7 billion from its balance sheet, but also is asking bondholders to approve a prepackaged reorganization plan in case it is forced to file for Chapter 11 bankruptcy protection.
New York-based CIT, one of the nation's largest lenders to small and midsize businesses, received $2.3 billion in federal bailout aid last fall, a $3 billion emergency loan in July from some of its largest bondholders, and bought back $1 billion in debt but still needs to reduce its debt burden to survive.
The company said late Thursday that its restructuring plan has been approved by its board and by the steering committee of its bondholders. Under terms of the deal, bondholders would exchange their current notes for a portion of five series of newly issued secured notes, with maturities ranging from four to eight years, and/or newly issued preferred shares.
The exchange offers will expire just before midnight Oct. 29. However, for the out-of-court debt restructuring to be successful, CIT said at least $5.7 billion worth of debt must be able to be wiped off of its balance sheet.
Therefore, CIT also is asking most bondholders and other holders of CIT debt to approve a prepackaged reorganization plan so the company has the option of filing for and quickly exiting Chapter 11 bankruptcy protection. CIT said it believes such a reorganization could be resolved "expeditiously" with minimal disruption to its business. In this process, CIT Bank and other CIT operations would not file for Chapter 11.
CIT said it has been told by advisers to the steering committee that holders of about $10 billion worth of unsecured debt have indicated they intend to participate in the debt swap or vote for the prepackaged bankruptcy plan.
CIT COLLAPSE WOULD BE FAR-REACHING
Some experts have warned a total collapse of CIT would deal a crippling blow to an economy still bleeding more than 100,000 jobs a month. The retail sector would be hit especially hard, because CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts have said 60 percent of the apparel industry depends on CIT for financing.
CIT Group shares plunged during 2008 from $24 to about $4, and bottomed at 31 cents in July when it appeared CIT's collapse was imminent. Shares have been volatile in recent days amid continued uncertainty of the company's survival, bouncing as high as $2.20 on Tuesday and then closing Friday at $1.17.